MITI and the Japanese miracle

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advice on the proper system of national and local taxes in Japan still carried great weight during the period 1950 to 1955. In essence, Shoup had called for a simplification of the tax system that would aggregate all types of income of a taxpayer (whether an individual or a "juridical person") and eliminate to the greatest degree possible the special tax benefits that were contained in the Taxation Special Measures Law (Sozei Tokubetsu Sochi Ho *, number 15 of 1946) and its numerous amendments.

Some of Shoup's proposals, such as a locally controlled value-added tax, were simply too advanced for the time; businessmen were outraged at the thought that they might have to pay a tax even when operating at a deficit, and it was quietly abandoned. But Shoup's ideas were not necessarily hostile to the use of the tax system to stimulate the economy. For example, his advocacy of a revaluation of assets in the light of Japan's inflation as a way to enhance the capitalization of enterprises met with a very favorable response and resulted in the passage of the Capital Assets Revaluation Law (Shisan Saihyoka* Ho, number 110 of April 1950). This statute literally created capital where none had existed before by a (downward) reassessment of industrial assets for tax purposes, a process that was conducted some three different times between 1950 and 1955.

But the main problem with the Shoup system was its hostility to the preferential treatment of strategic industries. Ikeda felt that Japan had to go in this directionalthough of course it meant an increasingly inequitable distribution of tax burdens throughout the societyand many of his Finance Ministry colleagues followed his lead because they preferred tax exemptions to subsidies on practical grounds. As Yoshikuni Jiro* (former director of the National Tax Agency and vice-minister of finance) has put it, taxes are better than subsidies, even though they are the same thing in theory, because a tax advantage is valuable only after an enterprise has done what the government wants it to do, whereas a subsidy is paid prior to performance and sometimes does not produce any improvement in performance.

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Another reason to prefer tax breaks to subsidies is their lower political saliencea feature of some value to Japanese bureaucrats during the 1950's in light of the Showa* Denko* and other scandals associated with the early occupation era.

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Randall Bartlett's comments are apropos: "Specific tax breaks offered to particular farms and industries act, in effect, like governmental subsidies to these agents. Rather than directly taking money from other segments of society and redistributing it to these firms through the budget process, these tax concessions merely leave them with greater financial resources (and lower costs). The resources which finance this subsidy are essentially the higher taxes paid by other agents. Because the use of taxes elimi-

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