Abenomics architect Hamada says Japan should cut corporation tax

The architect of Abenomics, Koichi Hamada of Yale University, has said told Reuters that Japanese Prime Minister Shinzo Abe should lower corporation tax in order to draw more foreign investment to the country.

Japan's growth strategy needs to include steps such as cutting the corporate tax rate, together with deregulation. This needs to happen not only in special economic zones but nationwide.

(Reuters)

Almost all taxes have deadweight costs, and corporation tax is a particularly obvious example of a counter-productive tax. It disicentivises production of goods and services.

It is also important to consider tax incidence. Corporations can't pay taxes any more than a television can pay a television license. Corporations are legal fictions, groups of people. Who the tax falls in can vary, but it's going to either be consumers (higher prices), workers (lower wages) or owners (lower returns). The evidence is mixed, but economists agree that all of these can happen.

Corporation tax just isn't a very good way of collecting taxes. That's not to say there aren't other things we couldn't tax instead, just that those other taxes might be less destructive. Hopefully coming from someone who's already had a lot of influence on the Japanese Prime Minister, these tax cuts might become a reality.