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Sales Tax Increase in 2014 Under Abenomics: The Japanese Government¡¦s Dilemma  
Product Ref: 15/563C Company: Japanese Government

Product Type: Case Industry: Government

Related Product(s): Teaching Note
Authors: Mitsuru Misawa   
On October 1, 2013 at a meeting of ruling party officials, Japanese Prime Minister Shinzo Abe said that he had decided to go ahead with a plan to increase the sales tax from 5% to 8%, beginning April 1, 2014. This tax hike had become law in August 2012, under then-Prime Minister Yoshihiko Noda. Abe, faced with a choice he did not ask for, sought to make a decision he could live with. Deciding whether to raise the tax had proven very hard for him. He had to take extraordinary care weighing conditions.

The Bank of Japan had already fired the first "arrow" of Abenomics, an unconventional easing of the money supply. The second, fiscal stimulus, was constrained by Japan's fiscal rebalancing goals. With regards to the third arrow, a strategy for economic growth, the government was still working out how to break entrenched regulations in farming and employment. Until the very last moment, Abe had to consider whether a tax increase would lead Japan back into the deep valley of deflation and economic stagnation.
Functional Area : Public Policy and Strategy

Learning Objective: In October 2013, it was time for Prime Minister Shinzo Abe to make his final decision - whether to move ahead with a sales tax increase, from 5% to 8%, in April 2014. The Bank of Japan (BOJ) had increasingly focused on implementing policies to ensure price increases and meet its inflation targets, as well as to strengthen its independence. Simultaneously, in the fiscal arena, the Ministry of Finance had focused on debt management. Abe needed to maintain effective coordination of monetary and fiscal policy if overall economic performance was to be optimized in the long run.

Governments have to make decisions all the time involving a choice between possible solutions to a problem. Good decision-making by any government involves knowing what the people will accept and support. An unpopular decision could result in non-compliance or even outright mutiny.

The first question to be asked: Is the problem well defined? Reasonable decision-making employs facts and figures. The answer to this question would indicate whether further fact-finding and research would have to be done. If enough research had already been done, a decision could be made rather quickly, although an effort might need to be made to gain popular support. This case provides students with a basic understanding of how a government decision-maker constructs the best possible way to arrive at a successful decision, based on given facts and figures.
Length: 14 pages Country: Japan

Pub. Year: 2015 Level of Difficulty: 3
This product type is available in the following language(s):      English
Related Information: N/A
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