Role of Taxe in the Development of the Japanese Economy
The role of taxation in the transformation of the Japanese Economy
Introduction
Before the Meiji restoration under the feudal Tokugawa Shogunate, taxation was mainly a tool for warfare and military power. The system was highly regressive and pressed lightly on the rich and profit-earners. It was calculated to preserve a very unequal distribution on incomes and to stimulate the accumulation of private capital. This tendency somehow continued and was magnified before W.W.II when direct taxation was introduced for a more equal and balanced system. However, the Meiji restoration did bring with it tremendous changes to the tax system and the use of the revenues. The Japanese government has since had an active participation in the economy, yet not controlling it directly but rather through market mechanisms. It took responsibility for promoting economic growth by using incentives and taxes collected in an effective way. The often cited goal of taxation in western countries that was equality was often sacrificed for the goal of economic growth in order to prevent being colonized, then to pursuit the desire to become an imperialist nation and then for pride and export. The role of government and its fiscal policies played an important role in the transformation of the Japanese economy through the periods of Meiji restoration, before W.W.II and post W.W.II period where taxes respectively shifted from land taxes to internal indirect taxes to income / direct taxes. (Fig 1)
Period of Meiji Restoration
During the first years of the Meiji reforms, the government had serious financial difficulties with tax revenues inadequate for its massive commitments. In 1873, land reforms gave tittles to landowners and customary tenants, freed the transfer and sale of land from feudal restrictions and imposed tax obligations equal to 3 per cent (which was lowered to 2.5% in 1878) of the value of land. In addition a 30% local surtax was imposed on the land taxes. These heavy land taxes were used to provide monetary compensations to the old ruling class for the termination of their feudal incomes in kind and to finance the new administration which introduced new education and to support its military. The agricultural sector, and in fact the peasants, therefore bore the great bulk of the cost to Japan's modernization. The land taxes contributed to over 70% of the central government's revenue during the first decade of the Restoration. Since the capital needs of agriculture were small even...