The following is from a tweet by Etsuro Honda, which I just discovered.
@etsuro0112
Currently, the BOJ is supplying enough money so fiscal stimulus will not raise interest rates, which will have a significant effect.
On the other hand, if taxes are raised even slightly, the negative impact will not be mitigated by falling interest rates (liquidity trap), so raising taxes is a forbidden move that must only be done once there is full employment.
Expansion of defense capability is necessary, but defense bonds should finance it as construction bonds.
Regarding the funding of defense reinforcement, the natural increase in revenue from economic growth is wholly omitted.
Naturally, the target for defense spending should be 2% of the GDP five years from now, but the prime minister's standard is always the GDP of 2022.
If 3% growth is achieved, nominal GDP 5 years from now will exceed 600 trillion yen from the current 550 trillion yen. The additional amount needed can be covered by increased tax revenue (the tax revenue elasticity is 2.7).
First, growth!
There needs to be more than the natural increase in revenues mentioned in the previous tweet to meet the needs, so the government will issue defense bonds instead of raising taxes.
Until the price stability target of 2% is reached and full employment is achieved, interest rates (expected real interest rates) will hardly rise even if government bonds are issued, so there is no problem of burdening future generations.
It will tolerate higher inflation if an emergency becomes imminent because the national defense will be the top priority.
@etsuro0112
(Continued) The current administration believes that government bonds will have to be redeemed by raising taxes in the future.
If the bonds are redeemed with refunding bonds, there will be no burden since the redemption party is the same generation, even if the bonds are redeemed by raising taxes.
The future generation will only bear the burden when private investment is crowding out due to higher-than-expected real interest rates or when the yen appreciates, exports decline, and net foreign assets decrease.
(continued)
Abenomics is an unprecedentedly large project to bring the economy out of deflation and long-term stagnation to price stability and full employment in a relatively short time (it has already taken ten years).
Once the economy normalizes, interest rates, wages, and tax revenues will rise.
I thank former Prime Minister Abe for raising us from a complete minority to a policy model.
