Ricardian Equivalence and Fiscal Policy Effectiveness in Japan

The present paper asks whether there is a limit to the potential for government spending to stimulate output in the Japanese economy. Overlapping generations and Ricardian infinite horizon representative agent models are developed, in which the government spending multiplier falls as the level of spending rises. Consistent with the Ricardian hypothesis, vector autoregressions (VAR) indicate that the timing of taxes has little impact on national output. Conversely, the impact of government spending is significant. However, using non–linear VAR techniques, the author finds empirical evidence for the hypothesis of a regime–dependent government spending multiplier that falls as spending rises.     

开放经济条件下财政政策有效性的研究

随着经济开放度的日益提高,外部经济的冲击加剧了国内外经济均衡的矛盾,不确定的外部影响因素越来越多,财政当局难以及时掌控这些因素的变化,财政政策的有效性明显降低,处于一种趋于减弱的状态。从短期看,财政政策是有效的,但长期来看,财政政策的有效性越来越小甚至呈中性特质。     

循环经济的困境与财政政策的有效性

市场经济固有的经济外部性缺陷,以及现有循环经济理论的滞后对循环经济的深入推进形成了制约,为此,应以政府为主导推进循环经济的发展。在政府主导型循环经济发展中,财政政策在政府各项政策措施中处于核心地位,对促进循环经济的发展有重大效果。     

Fiscal sustainability in Japan

This paper investigates fiscal sustainability of Japan by providing a dynamic stochastic general equilibrium (DSGE) model that features the low interest rate of the government bond relative to the economic growth rate to mimic the actual data. We evaluate fiscal sustainability by investigating whether the expected path of the debt-to-GDP ratio stabilizes or increases without bound. The debt-to-GDP ratio depends crucially on the projected growth rate and the fiscal policy rule. If the government does not react to the current fiscal crisis, the debt-to-GDP ratio will increase without bound, and then the fiscal policy is not sustainable. If the fiscal rule uses Bohn’s (1998) idea that involves the response of the primary surplus to the debt, sustainability improves. This rule provides a useful and realistic reform plan in the short and long runs.     

Fiscal Stabilization Policy and Fiscal Institutions

In this paper we analyse counter-cyclical fiscal policy withinthe context of a microfounded analysis of business-cycle stabilization.We show that tax and spending instruments can have a usefulcounter-cyclical role, even after allowing for the distortionarynature of the instruments and the need for debt sustainability.A critical barrier to the use of fiscal instruments may be politicaleconomy concerns, and we survey recent suggestions involvingalternative fiscal policy institutions. Footnotes ¹ E-mail addresses: c.b.leith{at}socsci.gla.ac.uk; s.wren-lewis{at}exeter.ac.uk     

Rethinking Fiscal Policy

The use of fiscal policy as a stabilization device has all butvanished, more or less explicitly in Europe and de facto inthe United States. The practical consequences have not beenentirely satisfactory, in either place. So it is important andtimely that the Oxford Review is devoting a special issue tothe macroeconomics of fiscal policy. In this paper I want todiscuss two underlying questions about the eclipse of fiscalpolicy. Why did this happen and was it a good idea? And if itwas not a good idea, then what follows? Footnotes ¹ E-mail address: jamu{at}mit.edu     

Financial Integration and Fiscal Policy

The aim of this paper is to assess the impact of financial integration on fiscal policy. Using an unbalanced panel of 31 OECD countries from 1970 to 2009, the paper shows that financial integration has significant disciplinary effects by reducing fiscal deficits and (discretionary) spending volatility. In addition, we find that financial integration affects the composition of government debt and enhances risk-sharing by increasing the share of foreign debt to the total. The results are robust to both de jure and de facto measures of financial integration, different measures of budget balance, and different estimation strategies.     

日本财政分权与经济增长

本文利用计量经济模型及其相关数据分析了日本财政分权与经济增长之间的关系。模型中引入了财政分权水平、地区收入自主水平、地区相对富裕度、国库支出金与全部财政支出的比值等因素作为重要的解释变量,通过相关系数的计算、拟合误差对比检验,来探究它们与经济增长之间的关系。研究结果表明:财政支出分权在一定程度上促进了经济的增长,而地区收入自主水平以及国库支出金占全部财政支出的比值则阻碍了经济的增长。     

Bicameral Legislatures and Fiscal Policy

Early and modern scholars both presume that bicameral chambers limit the exploitation of minorities by the ruling majority similar to supermajority voting rules. We explain theoretically why bicameralism is a unique and desirable institution for protecting minority interests. The empirical analysis examines the structure of bicameralism in the American States. Using detailed data to proxy voter preferences, we find the degree of constituent homogeneity across chambers to be an important determinant of government expenditures for several budget components. Decreased constituent homogeneity tends to reduce redistributive spending and increase spending on public goods.     

The Interactions between Fiscal Policy and Monetary Policy

This paper studies the interactions of fiscal policy and monetarypolicy when they stabilize a single economy against shocks ina dynamic setting. If both policy-makers are benevolent, then,in our model, the best outcome is achieved when monetary policydoes nearly all of the stabilization. If the monetary authoritiesare benevolent, but the fiscal authority discounts the future,or aims for an excessive level of output, then a Nash equilibriumwill result in large welfare losses: after an inflation shockthere will be excessively tight monetary policy, excessive fiscalexpansion, and a rapid accumulation of public debt. However,if, in these circumstances, there is a regime of fiscal leadership,then the outcome will be very nearly as good as when both policy-makersare benevolent. Footnotes ¹ E-mail addresses: t.kirsanova{at}exeter.ac.uk; jari.stehn{at}bnc.ox.ac.uk;david.vines{at}economics.oxford.ac.uk     

The Evolution of Fiscal Policy in Australia

This paper examines the evolution of Australian fiscal policyand the fiscal policy framework over the past quartercentury.Following the early 1980s recession, a sustained fiscal consolidationsaw the general government budget balance (for all levels ofgovernment) move from a deficit of 3 per cent of GDP in 1983/4to a surplus of 1 per cent 5 years later in 1988/9. A severerecession in the early 1990s interrupted this process, and thebudget returned to sizeable deficits which peaked at 4 per centof GDP in 1992/3. The second half of the 1990s saw a repeatof the experience a decade earlier, with the budget returningto surplus in 1997/8. In contrast to the 1980s experience, however,the general government sector (for all levels of government)has recorded surpluses for the subsequent 8 years to the present.The paper outlines Australia's macroeconomic experience overthis time and argues that there have been two significant medium-termfactors motivating the extended periods of fiscal consolidation.The first factor, relevant since the mid-1980s, has been thelarge Australian current-account deficits since that time, andthe associated build-up of net foreign liabilities. The secondfactor, which entered the public debate more recently, is adesire to provide fiscal policy flexibility to respond to theageing of the population and the projected rising public costof health services—both influences that are likely tobe of increasing importance over the next generation or so.The paper discusses the introduction and evolution of Australia'smedium-term fiscal framework which has been put in place torespond to these challenges. Footnotes ¹ E-mail addresses: dgruen{at}treasury.gov.au; asayegh{at}treasury.gov.au     

On Constraining Fiscal Policy Discretion in EMU

We review the theoretical and empirical literature on the benefitsand costs of imposing restrictions on fiscal policy. We emphasizethat the arguments in favour of restricting discretion of fiscalpolicy go beyond the notion of avoiding unsustainable budgetaryplans that can lead to pressure on the central bank. Restrictionson fiscal policy can also be justified on the grounds that discretionarychanges in spending or taxes can lead to unnecessary volatilityin output and lower economic growth. Empirically, there is evidencethat implicit constraints on governments can be as effectiveas explicit constraints (i.e. rules). From the analysis in EMUcountries in the last 10 years we conclude that there has beena significant change in the conduct of fiscal policy in termsof increased discipline and less use of discretion. However,since 1999 there are clear signs of fatigue in this processas previous trends have either stopped or even reversed.     

Fiscal Policy after the Great Recession

The Great Recession has severely hit the economies of most of the countries. Given that, fiscal policies have gained back a central role in the debate as a tool to recover from this situation. This paper provides an overview about the main controversial issues related to the fiscal policy. In particular, we analyze the role and the different effects played by discretionary counter-cyclical policies – say, for instance, tax cuts or increased government spending. Disagreement on this topic follows from the fact that it is extremely difficult to isolate the exogenous effect of these policies on GDP. We review several ways in which economists have tried to deal with this problem of estimation. Finally, we discuss why spending-based adjustments are preferable and less likely to be costly than tax-based ones and why large fiscal consolidation accompanied by appropriate policies can be much less costly than what we think.     

Fiscal limits and sovereign default risk in Japan

It is widely known that Japan has the highest debt-to-GDP ratio among OECD countries. If Japan’s national debt continues to balloon, fiscal crisis may occur in the future. This paper develops a closed economy model with defaultable government debt and conducts a simulation to investigate future sovereign debt risk.First, we estimate the fiscal limit which is defined as the sum of the discounted maximum fiscal surplus in all future periods. It is assumed that a partial default occurs when the amount of government debt exceeds the fiscal limit. We calculate the revenue-maximizing tax rate at the peak of the Laffer curve to derive the fiscal limit. As a result, the estimated average fiscal limit in Japan is much higher than that in Greece. In the Japanese economy, households are more patient and desire greater savings from greater discount factor derived from a lower real interest rate. Household saving habits support government bonds. This is the main reason why the Japanese government could have had a massive debt in addition to some room to raise the tax rate. Second, we simulate the model, using the estimated fiscal limit and non-linear computational methods. If the government debt-to-GDP ratio continues to increase for the next 20 years, the default probability will be over 10% and the sovereign risk premium will be approximately 2%. Furthermore, the default probability will reach approximately 80% and the sovereign risk premium will be 10% 30 years later.     

Fiscal Reconstruction and Local Interest Groups in Japan

This paper investigates the politicoeconomic properties of the fiscal reconstruction process in Japan by analyzing the dynamic game among local interest groups with concessions of region-specific privileges. Free-riding behavior of local interest groups brings numerous deficits. Our empirical evidence indicates that local privileges were powerful in the 1990s, which is the main reason fiscal reconstruction did not perform very well in the 1990s. J. Japan. Int. Econ., December 2002, 16(4), pp. 492–511. Faculty of Economics, Keio University, and Graduate School of International Relations and Pacific Studies, University of California, San Diego; and Department of Economics, University of Tokyo, Hongo, Tokyo 113-0033, Japan, and Economic and Social Research Institute, Cabinet Office of Japan, 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8970, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: H41, F13, D62.     

Fiscal stimulus and labor market dynamics in Japan

The paper studies the effects of fiscal expansion on the Japanese labor market. First, using a structural VAR model, we find that the unemployment rate falls and employment rises following an increase in government spending. We also find that fiscal expansion affects flows in and out of unemployment. While an increase in government spending increases the job-finding rate, it reduces the separation rate. We then incorporate search and matching frictions into a standard dynamic general equilibrium model, and study whether the model can explain what we observed in data. While the model fails to predict the exact size of the impact of government spending shocks on the Japanese labor market variables, it can consistently capture the empirical pattern of responses of labor market variables to shocks.     

The Macroeconomic Role of Fiscal Policy

This article examines the new consensus that fiscal policy shouldhave no macroeconomic role in ‘flexible inflation targeting’regimes. There is little basis for this presumption. Fiscalpolicy remains important in setting the policy mix and in managingshocks and imbalances. The credibility of an inflation-targetingregime should be enhanced rather than reduced if fiscal policyplays its proper role. It is true, nevertheless, that the costsof focusing fiscal policy narrowly on public-sector concernsmay not be very great, most of the time. However, when interestrates cannot be used, the role of fiscal policy must be different.With interest rates at their lower bound of zero, there is noplausible alternative. For asymmetric shocks and adjustmentsin EMU, fiscal policy needs, ideally, to substitute for theinterest-rate policy reaction function of the consensus, butthe difficulties are very great. We suggest a policy focus onreal exchange rates as a way of resolving some of the dilemmas.There is a serious danger that orthodox views about fiscal policy,drawn from the consensus, will be inappropriately applied, especiallyin Europe. Footnotes ¹ E-mail addresses: christopher.allsopp{at}new.ox.ac.uk; david.vines{at}economics.oxford.ac.uk