Japanese Recession Shows That Consumption Taxes Are Harmful Too

A common myth among economists is that unlike income taxes or payroll taxes, consumption taxes are harmless or almost harmless. That is however not true as consumption taxes reduce the benefit of a higher income and hurt the producers who sell the products.

Illustrating that consumption taxes are also harmful, Japan has seen its GDP drop by more than 2% since they raised its sales tax from 5% to 8%.

Japan should try to reduce its budget deficit, but that should be done in a way that doesn’t reduce incentives, which is to say it should be done by cutting government spending.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s