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Economist Krugman joins call for Japanese fiscal stimulus

Staff writer |
Paul KrugmanEvery 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.

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Japan ought to spend without concern for budget deficits for two or three years, Nobel laureate Paul Krugman told officials, 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.

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