Kentaro et al: ”How Inclusive is Abenomics?”

Gini before Taxes and Transfers (Market Income)

Figure: 1 Gini before Taxes and Transfers (Market Income)

“In the last two years, Japan has embarked on an ambitious effort, the so-called Abenomics approach, to decisively get the economy out of deflation and revive growth. At the same time, policymakers and academics from all over the world are engaging in a global debate on inequality. This column presents research assessing the impact of Abenomics on inclusive growth, as measured by a metric which takes into account both growth and income distribution. The main policy implication of our analysis is that full implementation of structural reforms is necessary to foster growth as well as increase equality in Japan.

Japan is not immune from the increase in inequality that has been observed in advanced countries in recent years. Anecdotal evidence suggests that, among the Japanese population, concerns over income inequality have grown, and the previously widely held notion that “All Japanese are middle class” has become something belonging to the past. As seen in Figure 1, when measured using the Gini coefficient of market income (before fiscal redistribution), inequality in Japan has increased steadily over the last three decades. The latest available figure implies that income inequality in Japan, starting from the lowest among the G7 countries in the mid-1980s, has converged to nearly the G7 average of 0.50.

Against this background, the rest of this column discusses why inequality is important not only in its own right but also from a macroeconomic point of view, and presents an evaluation of Abenomics in terms of its inclusiveness.

Why is it Important to focus on inclusive growth in Japan?

In our view, concerns over inequality and inclusiveness of growth are driven not only by social and moral considerations, but also are directly relevant to macroeconomic outcomes and to the ultimate success of Abenomics, for at least two reasons.

The first reason is that if the perception that economic growth is not being shared fairly within the Japanese society becomes prevalent, this could erode support for much needed reforms, such as deregulation and further international trade integration, which are crucial to boost long-term potential growth, but which might imply short-term costs for some segments of the population……”

Source: Crawford School of Public Policy – https://crawford.anu.edu.au/research_units/ajrc/news-articles/how-inclusive-is-abenomics.php

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