The main reason for this is that, in addition to “normal taxation”, inflation drives a further wedge between the real yield before tax and after tax. Inflation therefore causes the effective tax burden to increase, a process referred to as “cold progression”. Thus, inflation has significant adverse repercussions not only for growth, but also for income distribution in a society.
Chart 4 depicts steadily increasing GFSF loans provided to financial institutions by the Bank of Japan, which consist of the main-rule loans starting in September 2010 as well as three special-rule ones introduced afterward. Chart 5 shows the amount of financial institutions’ loans to firms that the GFSF generated, categorized by growth-related business lines.