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Empirical Economics

, Volume 57, Issue 2, pp 541–567 | Cite as

“Sakura” has not grown in a day: infrastructure investment and economic growth in Japan under different tax regimes

  • Emmanuel Apergis
  • Nicholas ApergisEmail author
Article
  • 156 Downloads

Abstract

This paper explores whether the validity of infrastructure investment serves as a procyclical or anticyclical instrument to counter a recession in the case of the Japanese economy. Infrastructure consumption is usually financed by taxes. For that reason, this paper accounts for the presence of alternative tax regimes. Namely, we have chosen regimes under Total Taxation, Capital Taxation, Corporate (Income) Taxation, Household Income Taxation and Indirect Taxation (valued added tax) to identify different policy outcomes under different regimes. The results indicate that when infrastructure is financed by different taxation across all its variations there is a negative relationship with GDP which is robust when the same estimation procedure is explored for industrial production. The trade-offs of a negative relationship, however, come with a lesser duration of the industrial production recession. The empirical results indicate that trying to get out of recession with infrastructure investment is underutilization of resources and does not touch the real issues that caused the recession.

Keywords

Economic growth Infrastructure policy Tax regimes Japan Markov switch dynamic regression 

JEL Classification

H54 E62 O47 

Notes

Acknowledgements

We are forever indebted to Bertrand Canderon, Professor in International Monetary Economics from Maastricht University and an anonymous referee for their valuable comments tackling methodological issues of this research project. We would like to share our deepest thanks to T. Scott Findley Associate Professor in Economics at Utah State University for their precious input into this work.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.University of KentCanterburyUK
  2. 2.University of PiraeusPiraeusGreece

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