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Challenges confronting Abenomics and Japanese public finance ?Fiscal consolidation must start by squarely facing reality?

Author

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  • Kazumasa Oguro

    (Associate Professor, Faculty of Economics, Hosei University)

Abstract

The LDP-New Komeito coalition government is currently promoting, under Prime Minister Abe, economic policies often dubbed gAbenomics h which combines gthree policy arrows, h including gaggressive monetary relaxation, h gflexible fiscal policy, h and ggrowth strategy that encourages private sector investment. h Of the three arrows, the current government is devoting its fullest effort to the first arrow: aggressive monetary relaxation. As a result of these initiatives, there has been a continued trend of a weaker yen and higher stock prices up to the present, led by market expectations for Abenomics. Although this market behavior is actually providing a political boost to the current administration, Japanese public finance faces a host of challenges including fiscal and social security reform. First, we analyze the ultimate percentage of consumption tax rate to achieve fiscal stability in Japan, and whether fiscal consolidation dependent solely on economic growth without tax increase or cuts in expenditures would be successful. In addition, we perform a simple analysis of the total asset (percentage of GDP) of the Bank of Japan in the future, if the BOJ continues to promote gNew Phase of Monetary Easing h (both in terms of quantity and quality).

Suggested Citation

  • Kazumasa Oguro, 2014. "Challenges confronting Abenomics and Japanese public finance ?Fiscal consolidation must start by squarely facing reality?," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 10(2), pages 301-318, August.
    • Handle: RePEc:mof:journl:ppr025c
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    References listed on IDEAS

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    Cited by:

    1. Takaaki Morimoto & Yuta Nakabo & Ken Tabata, 2016. "Population Aging, Fiscal Sustainability and PAYG Pension Reform," Discussion Paper Series 140, School of Economics, Kwansei Gakuin University, revised Feb 2016.
    2. Ken Tabata, 2017. "Population Aging, Unfunded Social Security and Economic Growth," Discussion Paper Series 155, School of Economics, Kwansei Gakuin University, revised Jan 2017.
    3. Takaaki Morimoto & Yuta Nakabo & Ken Tabata, 2018. "Population Aging, Labor Market Frictions, and PAYG Pension," Discussion Paper Series 172, School of Economics, Kwansei Gakuin University, revised Jan 2018.

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    More about this item

    Keywords

    government debt; fiscal sustainability; consumption tax rate; social security cost; Deficit Gamble; Quantitative and Qualitative Monetary Easing;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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