Japanese Recession Shows That Consumption Taxes Are Harmful Too

Steafan Karlsson notes:

A common myth among economists is that unlike income taxes or payroll taxes, consumption taxes are harmless or almost harmless. That is however not true as consumption taxes reduce the benefit of a higher income and hurt the producers who sell the products.

Illustrating that consumption taxes are also harmful, Japan has seen its GDP drop by more than 2% since they raised its sales tax from 5% to 8%.

Japan should try to reduce its budget deficit, but that should be done in a way that doesn’t reduce incentives, which is to say it should be done by cutting government spending.