Japanese Fiscal Policy Research Articles

The evolution of Japanese real GDP components in the time–frequency domain: The disappearance of the investment accelerator effect?

AbstractUnderstanding the interaction between national income GDP expenditure components is a key part of the study of the macroeconomics of any country. The general aim of this study is to explore this interaction between the GDP expenditure components in the time–frequency domain for the country of Japan, obtain some stylized facts and then compare them with those of the United States. The main result shows that the cyclical interactions between consumption and investment are typical of an “accelerator” effect and operate at several different frequencies, but that the several different cycles evident in the data phase out in the 1990s, once secular stagnation started to take hold. We hypothesize that Japan's investment drivers then changed to be dependent on the external sector by the 2000s. A secondary result is that Japanese fiscal policy appears to have been largely ineffective in terms of creating cyclical interactions with other GDP components.

Fiscal stimulus effectiveness in Japan: evidence from recent policies

ABSTRACTThis article examines the effects of Japanese fiscal policy after the 2008 global financial crisis using a mixed vector autoregression/event study approach. We focus on the effects of stimulus packages with environmental benefits. The empirical results show that a tax break and subsidy programme designed to promote the adoption of eco-friendly cars helped stimulate automobile production, while a similar programme intended to promote the purchase of energy-efficient appliances had no effect on appliance production.

Japan’s Experience with Fiscal Policy in the 1990s in the Aftermath of the Bubble Economy

Nakao examines the evolution of Japanese fiscal policy in the Nineties and its current challenges. His account begins with an analysis of the collapse of the financial bubble at the beginning of the Nineties. He argues that the prolonged economic slump of the last decade largely depends on the effects of wealth losses on consumption and investment decisions and on balance sheet problems of financial and non-financial corporations. These problems were exacerbated by several structural factors, ranging from population ageing to the inflexibility of labour market and corporate governance. Nakao notes that Japanese authorities took an active approach. Many large fiscal packages were introduced to boost the economy determining a sizeable increase in public capital expenditure. Interest rates were reduced. Wide-ranging structural reforms were promoted. However, fiscal expansion did not succeed in reviving the economy. The multiplier effect of public works decreased. Public debt accumulation may have determined expectations of future tax increases; the productivity of the additional public works may have been rather limited. Nakao considers that policies that merely support demand cannot improve economic expectations. He advocates radical structural reforms and a rationalisation of public expenditure, including a better selection of capital projects. An increase of revenues, now relatively low as a ratio to GDP, may also be helpful in improving the budget balance. The author concludes that Japanese technology, saving ratio and well-educated labour force indicate that the country can successfully overcome its current problems.

The effects of fiscal policy in the 1990s in Japan: A VAR analysis with event studies

This paper examines the effects of Japanese fiscal policy during the 1990s. A mixed vector autoregression (VAR)/event study approach is used for this purpose. The first empirical finding is that in the late 1990s, the negative effect of fiscal policy was larger and more persistent than the positive effect. This finding suggests that the large fiscal expansions in the late 1990s were inadequate for stimulating the macroeconomy in terms of the size and persistence of their policy effects. The second finding is that the permanent tax cuts implemented in the former part of the 1990s increased consumer durable spending significantly and persistently. This increase may reflect consumers’ incentive to spend before the increase in the consumption tax rate in April 1997.

Fiscal policy and fiscal reconstruction in Japan

This paper investigates the macroeconomic effect of fiscal policy and the fiscal reconstruction movement in Japan. I first summarize Japanese fiscal policy in the recent years and discuss sustainability of government deficits. Then, I investigate the macroeconomic effect of Japanese fiscal policy and evaluate the plausibility of the Keynesian and non-Keynesian effects. I also analyze political constraints in the fiscal reconstruction attempts and the possibility of crowding-in effect of fiscal reform. Finally, I discuss some measures for the successful fiscal reconstruction reform in the near future.

Japan's fiscal policy and fiscal reconstruction

This paper investigates the macroeconomic effects of fiscal policy and the fiscal reconstruction movement in Japan. We first summarize Japan's fiscal policy in recent years and discuss advantages and disadvantages of government deficits. Next, we investigate the macroeconomic effects of Japanese fiscal policy and evaluate the plausibility of non-Keynesian effects. We also analyze the possibility of the crowding-in effect of fiscal policy and investigate the spillover effects of deregulation. Finally, we discuss political constraints in the fiscal reconstruction attempts and propose some measures for successful fiscal reforms in the near future.

Fiscal Rules and Fiscal Performance in Europe and Japan

Fiscal rules specify quantitative targets for key budgetary aggregates. In this paper, we review the experience with such rules in Japan and in the EU. Comparing the performance of fiscal policy in the 1980s and 1990s until 2003, we find that the fiscal rule of the 1980s exerted some but not much disciplinary influence on Japanese fiscal policy. The fiscal rule of the Maastricht Treaty had a significant impact on political budget cycles in the EU, but did little to constrain fiscal policy in the large member states. Since the start of the European Monetary Union, the disciplinary effect of the fiscal rule in the EU has vanished. Next, we discuss the importance of budgetary institutions for the effectiveness of fiscal rules. In Europe, a number of countries adopted strong fiscal rules, i.e., a fiscal rule combined with a design of the budget process enabling governments to commit to the rule. We find that strong fiscal rules have been effective. We conclude with some suggestions for the design of a strong fiscal rule in Japan.

Fiscal Policy Effectiveness in Japan

The effectiveness of fiscal policy in Japan over the past decade has been a matter of great controversy. We investigate the effectiveness of Japanese fiscal policy over the 1976–1999 period using a structural VAR analysis of real GDP, tax revenues, and public expenditures. We find that expansionary fiscal policy, whether in the form of tax cuts or of public works spending, had significant stimulative effects. Using a new method of computing policy multipliers from structural VARs, we calculate that the multiplier on tax cuts is about 25% higher at a four-year horizon than that on public works spending, though both are well in excess of one. A historical decomposition reveals that Japanese fiscal policy was contractionary over much of the 1990s, and a significant proportion of the variation in growth can be attributed to fiscal policy shocks; accordingly, most of the run-up in public debt is attributable to declining tax revenues due to the recession. Examining savings behavior directly, we find limited evidence of Ricardian effects, insufficient to offset the short-term effects of discretionary fiscal policy. J. Japan. Int. Econ., December 2002, 16(4), pp. 536–558. Federal Reserve Bank of New York, New York, and Institute for International Economics, Washington, DC. © 2002 Elsevier Science (USA). Journal of Economic Literature Classification Numbers: E62, E65, E21.

Fiscal Policy Effectiveness in Japan

The effectiveness of fiscal policy in Japan over the past decade has been a matter of great controversy. We investigate the effectiveness of Japanese fiscal policy over the 1976-1999 period using a structural VAR analysis of real GDP, tax revenues, and public expenditures. We find that expansionary fiscal policy, whether in the form of tax cuts or of public works spending, had significant stimulative effects. Using a new method of computing policy multipliers from structural VARs, we calculate that the multiplier on tax cuts is about 25% higher at a four-year horizon than that on public works spending, though both are well in excess of one. A historical decomposition reveals that Japanese fiscal policy was contractionary over much of the 1990s, and a significant proportion of the variation in growth can be attributed to fiscal policy shocks; accordingly, most of the run-up in public debt is attributable to declining tax revenues due to the recession. Examining savings behavior directly, we find limited evidence of Ricardian effects, insufficient to offset the short-term effects of discretionary fiscal policy.

A Decade of Deficits and Debt: Japanese Fiscal Policy and the Rise and Fall of the Fiscal Structural Reform Act of 1997

Japanese budgetary and fiscal policy have experienced dramatic changes during the last several years, marked by the rise and fall of the Fiscal Structural Reform Act of 1997. This act altered the budgetary process with the goal of reducing Japan’s rapidly growing deficit and debt. Yet the onset of recession in 1998 led Japan to engage again in large‐scale deficit spending to stimulate the economy, and in the process discard its budget reforms.

Japan's persistent trade surplus: Policies for adjustment

While part of the recent increase in the Japanese trade surplus can be attributed to the Japanese recession, the surplus has widened despite the appreciation of the yen and enactment of policies to open Japanese markets. We review the trade surplus issue in the light of theories of trade and current account adjustment. We evaluate the potential for exchange appreciation and Japanese fiscal policy to reduce the imbalance, estimating their effects using simulations of the NIRA-LINK model of the US - Japan-world economy. The simulations show that moderate use of macropolicies would not be sufficient to eliminate the trade imbalance.