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Efficacy of Fiscal Policy in Japan: Keynesian and Non-Keynesian Effects on Aggregate Demand

Author

Listed:
  • Yusuke Kinari

    (Graduate School of Economics, Osaka University, Japan)

  • Masahiko Shibamoto

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

There are two ways of analyzing the efficacy of fiscal policy: the VAR approach and the nonlinear approach. The important difference between them is that the former assumes a linear effect of fiscal policy whereas the latter assumes a nonlinear effect. However, it has never been tested whether the effect is linear or nonlinear. This should first be confirmed so that the efficacy of fiscal policy can be evaluated precisely. This paper examines whether Japanese fiscal policy is effective, and whether the effect is linear or nonlinear. Our results reveal that an increase in government expenditure causes a decrease in private consumption when the government debt/GDP ratio is high, whereas when the ratio is low, it has a positive effect. Our results support the nonlinear effect, and indicate that an increase in government expenditure had a Keynesian effect before around 1998, but after that, it had a non-Keynesian effect.

Suggested Citation

  • Yusuke Kinari & Masahiko Shibamoto, 2007. "Efficacy of Fiscal Policy in Japan: Keynesian and Non-Keynesian Effects on Aggregate Demand," Discussion Paper Series 212, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:212
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    Citations

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    Cited by:

    1. Wissem Khanfir, 2017. "Can Contractionary Fiscal Policy be Expansionary? Evidence from Tunisia," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 5(2), pages 223-232, June.
    2. Kameda, Keigo, 2014. "What causes changes in the effects of fiscal policy? A case study of Japan," Japan and the World Economy, Elsevier, vol. 31(C), pages 14-31.

    More about this item

    Keywords

    Fiscal Policy; Non-Keynesian Effect; Threshold Regression Model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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