Political Coalition, Developmentalism, and the Welfare State: Analyzing the Tax-Welfare Nexus in Japan, 1945-1975

After the defeat of World War II, Japan developed a low-tax revenue structure centered on income taxes. It was a system designed to serve the developmental strategy of capital accumulation while simultaneously politically favoring farmers and the self-employed. The need for accumulation and the priority given to stimulating the economy meant that the government’s attention to formal welfare spending was relatively limited. In the 1970s, as economic growth and opposition pressure increased the demand for income distribution, discussions on realizing a full-fledged welfare state began. In this regard, government reports were submitted that envisioned a “high welfare, high burden” system, which became a major agenda item during budget deliberations. The economic bureaucrats were in favor of gradual welfare expansion in light of fiscal pressure, but when the issue of balance of payments surplus emerged in the early 1970s, they chose the latter over the former, choosing between yen appreciation and fiscal expansion. The welfare state path envisioned in the late 1960s temporarily served the interests of the developmental political coalition and led to the rapid expansion of official welfare policies, including free medical care for the elderly and expanded pension benefits. However, the government and the LDP prioritized developmental considerations and political support, and were not interested in laying a long-term fiscal foundation, such as tax increases. In the absence of a fiscal consensus or institutions, welfare initiatives were not institutionalized, and attempts to expand formal welfare programs were thwarted by the impact of the first oil shock in 1973.