Japan's Fiscal Crisis

Abstract

AbstractThis book traces the origins and development of Japan's recent fiscal crisis. In a detailed analysis of the institutions, structures, and processes of central government, the book explains how decisions were made about how much to spend and on what in the central budget and the Fiscal and Investment Loan Programme—the so-called ‘second budget’. This book shows who and what won and lost and why, explains the informal policy and behavioural rules-of-the-game by which the conduct of the main players was regulated, and compares Japan's fiscal performance with the UK and other G7 countries. It challenges the orthodoxy that a dominant and dominating Ministry of Finance (MOF) implemented tough policies of retrenchment in the 1980s. The appearance of fiscal discipline was not matched by the reality of too much spending, too few revenues, and heavy borrowing. The MOF not only failed to restore a balanced budget, it was unable to achieve most of its short and long-term fiscal objectives during the last quarter of the 20th century. Unravelling the complexity and opacity of the budgetary system, the book shows how MOF officials exploited it to foster an illusion of control. Through adroit manipulation of off-budget sources, and by fiscal sleight-of-hand, the MOF was able to deliver an expanding supply of budget benefits to the ruling Liberal Democratic party, and the means to finance the growth and maintenance of a ‘Public Works State’.