The Tax System and Economic
Development in Japan
My aim in this chapter is to describe the main features of the Japanese tax system prior to the 1930s, given that its features were quite different from those of Asian countries that developed more recently, and to discuss those elements in the tax system that contributed favorably to Japan's economic development. I will also examine tax incentives in the postwar years from an industrial policy viewpoint.
The method of analyzing the tax system of Japan used in this chapter is probably different from any of the conventional ones in that it does not emphasize the dual-economy argument or adopt the usual arguments for protecting infant industries. Even though I do not deny the validity of these conventional arguments, I hope that the analytical approach used here enhances or supplements the explanations offered by the more conventional approaches.
In this section, I trace the development of the Japanese tax system before World War II and point out its main characteristics during the period. The period begins in 1880, when several old-type taxes or charges were abolished, and ends when the Japanese economy began its transformation into a war economy. 1
The characteristics of the tax system can be seen by comparing the system with the normal pattern of tax-system development or another standard. There have been many arguments made to support the normal pattern of tax-system development, most notably those by Hinrichs ( 1966) and Musgrave ( 1969), and these need not be discussed in depth here. As