The effects of ‘Gesell’ (Currency) taxes in promoting Japan's economic recovery

The traditional interest rate policy has lost its potency due to the zero-lower bound of nominal interest rates and the gradual accelerating deflation in Japan. Without stopping deflation, the Japanese government may face a rapid erosion of credit worthiness due to an uncontrolled budget deficit. In order to cope with this unusual situation, a non-traditional monetary policy measure is proposed. A negative nominal interest rate is needed to clear Japanese markets and can be achieved by levying a tax on all the government-guaranteed yen financial assets. This is a modified version of Gesell's stamp duty on currency for actual implementation in the contemporary context. The benefits and side effects of this tax for Japan are analyzed here.