Mankiw on Tax Policy

In Japan, there are a lot of types of discussion about tax policy. Many of them look a mixture of Keynesian and New Classical theory.

Prof. Mankiw did well to summarize the points on tax policy and it should be carried on his new 6th edition of the Principles of Economics not only for students but also for policymakers:

#1 Efficiency: The tax system should distort incentives as little as possible (and, in the case of externalities and Pigovian taxes, correct incentives when necessary).

#2 Intergenerational equity: The tax system should raise enough revenue so current generations do not unduly burden future generations.

#3 Egalitarianism: The tax system should try to achieve a more equal distribution of after-tax incomes.

#4 Stabilization: The tax system should help maintain the economy at full employment.

Many policymakers in Japan, especially some members of LDP, seem to have been from #4 Stabilization to #1 Efficiency. One of the reasons is that they recognize that change on tax doesn't boost the stagnant economy in the 1990s and they begin to know that it is more important for them to keep the economy as efficient as possible in order to make private companies strong.

If private companies become strong, then the profit, income and employment raise up and thus does individual consumption. This idea has been alive since ex-Prime Minister Koizumi and his main economic advisors, Takenaka(Keio Univ.) and Honma(Osaka Univ.) were at work. Especially Honnma emphasized such logic during his work. However, nobody knows if it is true or not.

Many members of LDP don't seem to put emphasis on #2 Intergenerational equity and #3 Egalitarianism.

The reason is that, especially #3 seems a little socialistic and so they don't try to aim at #3. Surprisingly they fail to look at #2. Why not? I think that the reason is that many of them are over 60. So they can't understand their future generations or they may hope that future generations will overcome the problem of the burden of tax reduction in their hearts.

Anyway, in Japan there seems no such classical tradeoff between efficiency and fairness regarding the tax policy. Many of the members of LDP look only at #1. Is that OK in terms of the theory of economic policy? I have no idea.