The rise and fall of deficit in Japan, 1965–1990

This paper investigates the fifteen-year period when the Japanese government deficit (defined as the deficit bond issues to the general budget) rose sharply and shrank to zero. Our main contribution is to differentiate the budget “plan” and the “actual” (ex post) budget in order to distinguish intention and surprise. From 1976 to 1979, deficit bonds were considered to be deliberately increased, because of little surprise (deviations of actual from planned budget) in deficits for these years. The deficit ratio was brought down in the 1980s, mainly by freezing expenditures at the nominal level and waiting for bracket creeps in taxes to catch up. Beyond a trend increase in the 1970s and a trend decrease in the 1980s, the Japanese government acted to pursue a fiscal expenditure fine-tuning.