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Economist Krugman joins call for Japanese fiscal stimulus

Paul Krugman, left, advised Japanese leaders against raising the consumption tax.

TOKYO -- Every one of the economists that Prime Minister Shinzo Abe has invited here for a series of meetings with policymakers has recommended that Japan let loose government spending to counter slowing growth.

     Japan ought to spend without concern for budget deficits for two or three years, Nobel laureate Paul Krugman told officials here Tuesday, prompted by Abe. The prime minister said he has been told his debt-laden country ought to take advantage of negative interest rates to do just that.

     Krugman said he supports Japan's policies but that more could be done as weakness pervades the global economy. When Abe asked why consumer spending has remained feeble since the 2014 consumption tax increase, the U.S. academic suggested the answer lies in expectations that fiscal stimulus will end. Krugman also cited Japan's shrinking labor force.

     Krugman told reporters later that now is not the time to raise the consumption tax again, echoing fellow Nobel Prize winner Joseph Stiglitz, who spoke at the first meeting in the series. A tax increase to 10% from 8% is set for April 2017, but Stiglitz urged a postponement. Two leading members of Abe's economic brain trust, Koichi Hamada and Etsuro Honda, have offered the same advice.

     Harvard University economist Dale Jorgenson and Kazumasa Iwata, president of the Japan Center for Economic Research, also supported accommodative fiscal policy in their recent meetings with Abe. Jorgenson argued that Japan needs to raise its consumption tax, but he did not say when. Iwata did not mention that issue.

     Group of 20 finance and central bank chiefs said while meeting in China last month that "monetary policy alone cannot lead to balanced growth." The chiefs said they stood ready to use fiscal measures to sustain the global economic recovery.

     Abe's government describes the series of talks with economists as preparation for the Group of Seven summit Japan will host in May. He appears to be seeking to rally the G-7 for aggressive fiscal policy.

     The Abe government's forthcoming economic stimulus package is expected to include measures meant to end wait lists for child day care and improve the lot of nonregular employees. An Abe aide said the package needs to be worth at least 5 trillion yen ($44.7 billion), enough to raise economic growth by 1 percentage point. With an upper house election looming in July, ruling coalition lawmakers also are eager to dole out massive public spending.


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