Archive | December 2017

Japan proposes a different type of corporate tax breaks

In the US corporate taxes are being reduced. The intention is to stimulate investment and to persuade US companies not to relocate overseas. But suppose the reductions are just used to increase profits for owners and shareholder or to increase management wages?

There needs to be a way to make the incentives work as intended. In Japan,  the government has decided (probably from April 2018) to stop corporate tax incentives (“tax breaks”) by which large companies can pay less tax under certain conditions (such as for R&D), if those companies do not increase wages and investments (spending on capital).

The need to increase wages in Japan is aimed at increasing consumption. If consumption and investment can increase significantly, there will he less need for aggregate demand to be stimulated by fiscal policy or net exports, on which Japan has been relying to promote growth.