Tax Revenue

The national burden ratio is an indicator of tax burden, which is the tax revenue including social security contributions per national income. The national burden ratio of national and local taxes in Japan was about 30 % until the 1980s. It then began to rise. Recently, it has been about 40 %. If we make a comparison with other developed countries, Japan’s figure is larger than that of the US but smaller than that of the EU. In terms of an international comparison, Japan and the US are mainly dependent on direct tax, while the EU is mainly dependent on indirect tax.

Public Debt

In accordance with Japan’s public finance law, public debt issuance is allowed only for financing public works, loans, and funds. This is because the redemption of public debt has moved to future generations and hence the burden of public debt has moved to future generations; thus, public debt is desirable only for expenditure that benefits future generations. The construction bond based on this principle was first issued in the budget of 1966, and since then has been issued every year.

It should be stressed that public works are not always productive. As explained in the Case Study of Chap. 2, the productivity of public investment in Japan has been declining. If the construction and maintenance cost of public capital is larger than the benefit of use of public capital, future generations do not benefit from public capital accumulation. In such a situation, we have to be careful about issuing the construction bond again.

Moreover, since 1975, a special law has been imposed so as to issue a deficit bond that is used for ordinary expenditure. This means that from 1975, the gap between public expenditure and tax revenue has become larger than the period following the issuance of the construction bond.

Owing to fiscal consolidation measures in the 1980s, the 1990 budget did not issue the deficit bond. However, from 1991, tax revenue was not as large as anticipated; hence, the deficit bond was issued again from 1994 (see Fig. 1.4).

 
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