Tuesday, June 29, 2010

Should Japan Copy the Swedish Model?

Asahi Shimbun reports on its English web edition that Prime Minister Naoto Kan wants to tackle Japan's budget problems using the Swedish model, which combines high taxes and a broad social security net.

The newspaper writes that the Prime Minister "got advice from an economics professor who champions the Swedish example of a very high tax burden in exchange for social security benefits that allow retirees to live comfortably." It was on May 17 that the then Financie Minister Naoto Kan consulted Naohiko Jinno, a professor emeritus of economics at the University of Tokyo.
"Here's why I think we need to impose a heavier tax burden," Jinno said. "It would create a solid welfare system and a strong economy. Those two points will ensure that domestic consumption remains strong as people will be able to spend," said Jinno, who is the key member of the government's Tax Commission.
Naoto Kan became leader of the Democratic Party of Japan, and was chosen as Prime Minister by the Japanese parliament on June 4th, following the resignation of Yukio Hatoyama on June 3rd.

Asahi Shimbun writes:
"Economic theory, according to Kan, centers on the following: Japan has no time to waste in implementing fiscal reconstruction. To do that, tax increases are indispensable. But simply raising taxes will cool the economy. If the government uses the additional tax revenue to fund improved social security programs, gloom about the future will evaporate, and, as a result, people will start spending again. Based on this idea, if the government pumps money into medical services and nursing care, areas where demand is expected to grow sharply due to the aging population, economic growth will follow."
I don't know enough about Japan to say whether this is a good idea or not, but I like the concept of balancing the budget while at the same time providing people with something in exchange. Instead of cutting the deficicits so that the already rich can keep more of their wealth, the Prime Minister suggests strengthening people's sense of security could make them spend money.

Hans Sandberg

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