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Stock Price Targeting and Fiscal Deficit in Japan: Why Did the Fiscal Deficit Increase . during Japan's Lost Decades?

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Author Info

  • Shin-ichi Fukuda

    (Faculty of Economics, University of Tokyo)

  • Junji Yamada

    (Graduate School of Economics, University of Tokyo)

Abstract

The purpose of this paper is to explain why Japan's fiscal deficit increased so dramatically in the 1990s and the 2000s. We focus on the role of "stock price targeting" to explain why the fiscal expenditure increased so much. After presenting a simple model to describe government behavior with an optimistic view about stock price and output growth, the paper tests whether the model can explain Japan's fiscal expenditure. The empirical results, using biannual and highfrequency data of the 1990s and the 2000s, show that the stock price targeting can track Japan's fiscal expenditure reasonably well, especially in the 1990s. They imply that without the stock price targeting, the total amount of biannual fiscal stimulus from 1992 to 2000 would have been lower by 2.5 trillion yen on average.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2011/2011cf819.pdf
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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-819.

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Length: 36 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:tky:fseres:2011cf819

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  1. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  2. Troy Davig & Eric M. Leeper, 2009. "Monetary-Fiscal Policy Interactions and Fiscal Stimulus," NBER Working Papers 15133, National Bureau of Economic Research, Inc.
  3. Bayoumi, Tamim, 2001. "The morning after: explaining the slowdown in Japanese growth in the 1990s," Journal of International Economics, Elsevier, vol. 53(2), pages 241-259, April.
  4. Doi, Takero & Ihori, Toshihiro, 2002. "Fiscal Reconstruction and Local Interest Groups in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 16(4), pages 492-511, December.
  5. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
  6. Robert J. Barro & Charles J. Redlick, 2009. "Macroeconomic Effects from Government Purchases and Taxes," NBER Working Papers 15369, National Bureau of Economic Research, Inc.
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Cited by:
  1. Kengo Nutahara, 2013. "Asset Price Targeting Government Spending and Equilibrium Indeterminacy in A Sticky-Price Economy," CIGS Working Paper Series 13-003E, The Canon Institute for Global Studies.
  2. Takao Fujii & Kazuki Hiraga & Masafumi Kozuka, 2012. "Analyses of Public Investment Shock in Japan: Factor Augmented Vector Autoregressive Approach," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-006, Keio/Kyoto Joint Global COE Program.

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