Nobel laureate Krugman calls for tax hike delay, stimulus measures


Nobel-winning U.S. economist Paul Krugman has urged Japan to hold off on a consumption tax increase planned for April next year and hammer out new stimulus measures to overcome deflation.

“I would call for not hiking the consumption tax,” Krugman said Tuesday after a meeting with Prime Minister Shinzo Abe and other top government officials. “Definitely there should be an additional push, not simply holding off on the consumption tax but some actual deliberate stimulus.”

Given the current global economic weakness, he told reporters that Japan had not emerged from deflation and fiscal policy should be used to reinforce monetary easing after the world’s third-largest economy has depended too much on accommodative monetary policy.

Krugman, a winner of the Nobel Memorial Prize in Economic Sciences and an advocate of setting inflation targets through monetary easing, urged Abe in November 2014 to postpone the tax hike initially planned for October 2015 to beat deflation.

Abe later decided to delay the hike by 18 months.

As for the Group of Seven summit to be held in Japan in late May, Krugman said there was “general weakness across the advanced world and serious problems in the emerging world.” He said there was a need for “coordinated stimulus” similar to that adopted by the Group of 20 economies in 2009.

Experts invited to present their views to the government have been divided over the global economic outlook and whether Japan should raise its consumption tax rate.

Last week, fellow Nobel laureate economist Joseph Stiglitz of Columbia University presented a gloomy economic outlook and called for forgoing the tax hike, while Harvard University professor Dale Jorgenson offered an optimistic view of the economy and pointed to the need for Japan to raise the consumption tax without specifying any timing.

Their hearings are expected to influence government decisions over whether to go ahead with the tax increase to 10 percent from the current 8 percent.

Abe economic policy adviser Etsuro Honda said Saturday the prime minister will make a decision on the matter based on the outcome of the G-7 summit in May, saying the issue has turned into a “competition” between officials supporting the hike and those against it.

The May 26 to 27 summit in Mie Prefecture is expected to cover global economic stability. The G-7 comprises Britain, Canada, France, Germany, Italy, Japan and the United States.

  • thedudeabidez

    Krugman fails to explain how two decades-plus of “fiscal stimulus” has failed to improve Japan’s economy or end deflation. Japan’s debt situation is about as bad as Greece’s, yet Krugman recommends even more debt-financed spending on bridges to nowhere and the Olympics, presumably. These make-work projects bump employment and spending up temporarily (and are also funneled to politically connected contractors who pay kickbacks through campaign “donations”) while providing nothing structurally needed or useful and incurring long-term maintenance costs on top of the debt-financed construction costs.

    Krugman wants to double-down on a policy that has failed, failed, and failed again to revive Japan since the bubble era; why?