Study on the Financial Effect of Japan’s Consumption Tax Reform

Guowei ZHONG

China University of Political Science and Law, Beijing, 100088, CHINA

Abstract: Since the 1980s, Japanese government has raised consumption tax three times, and its main purpose is to reduce the huge budget deficit which due to sluggish economic growth and rising social security

expenditures.In this paper, based on theoretical study, we found that changes of consumption tax will result in fiscal effects through several paths such as enterprise output and household consumption in two aspects of fiscal revenue and expenditure; Experimental test to the financial effects of two former Japanese consumption tax reform through VAR model shown that raising consumption tax rate has positive financial effects in the short term but it is negative in the long term. Therefore, if Japan does not implement thorough reform of social economic structure, raising consumption tax rate would be difficult to resolve Japan's fiscal deficit problem fundamentally on the background what Japanese economy is not out of doldrums.

Keywords: Japan; Consumption tax reform; Enterprise output; Household consumption; Financial effects