Twelve years have passed since the question of the financial foundation of contemporary welfare states first occurred to me while I was doing dissertation research on Japanese tax reform. In 1989, the consumption tax in Japan faced formidable opposition: in the public's mind, the new tax meant increasing already heavy taxes and damaging income equality. Despite its politicization, however, the total Japanese tax revenue as a proportion of the national economy has been lower than that of most other industrial democracies. Moreover, revenues from regressive taxes on consumption as well as a progressive income tax have financed high public expenditures in the Scandinavian countries, which have achieved the highest income equality among industrial democracies. I was amused by this discrepancy between the politicization of tax issues in Japan and the Japanese tax revenue structure compared with other countries. There seemed to be a completely different criterion from one country to another about “high” and “low” tax levels that was very likely related to how much revenue a country would raise from what kind of taxation. Politics matters in the public's tolerance for and its expectation of taxation. How does politics define the tax level and formulate the public's expectation about tax policies? To answer this question, I have compared the financial base of welfare states.

In the development of postwar tax policies, the introduction of general consumption taxes embodies a major shift – a revenue reliance shift from income to consumption.