Politics, Pressure, and Economic Policy: Explaining Japan's Use of Economic Stimulus Policies

Abstract

While supplementary budgeting has long been part of the Japanese fiscal cycle, substantive and procedural aspects of the process have changed. First, since the late 1970s, supplementary budgets have been used to fund government economic stimulus efforts (keizai taisaku), and second, since the late 1980s, these budgets have been assembled several months after the announcement of the actual stimulus packages. Such stimulus policies do not fit the prevailing model of the Japanese electoral business cycle, which emphasizes the targeting of benefits by the Liberal Democratic Party (ldp) at its constituents at election time. This article addresses this anomoly by developing a theory of how governing parties use the economic policy process to serve their electoral interests, particularly through broadly gauged policies designed to improve macroeconomic conditions. The authors amend the prevailing model to allow an adequate test of their electoral theory to be conducted. The results suggest that Japanese economic stimulus policies were the result of governing parties' attempts to expand their support at election time and to satisfy U.S. pressure to usefiscalpolicy to stimulate domestic demand.