Even as Japan and the United States need deficit-funded stimulus now to stay on the recovery path, sustained large budget deficits will be a long-term problem that undermines their future growth prospects and must be addressed. But how?
Tax hikes might be one inevitable solution, given that the two countries are near the bottom of the list of advanced economies around the world in terms of tax-to-gross domestic product ratio. U.S. data meanwhile suggest that tax reduction is a much more effective tool than increases in government spending as a tool to turn the economy around.
These were among the views expressed by American experts who took part in the Feb. 19 symposium in Tokyo, organized by Keizai Koho Center under the theme "Revitalization of the Japanese economy — views from U.S. think tank researchers." Tetsuro Sugiura, chief economist at Mizuho Research Institute, served as moderator of discussions.