"Fiscal Policy and Macroeconomy in Japan: A Historical Perspective"(in Japanese)

In this paper we examine performance of fiscal policy from a historical standpoint. Before WWII, government expenditure was not a stabilizing factor, but its volatile fluctuation caused instability of the Japanese economy. Especially before WWI, sporadic sharp increase of government expenditure caused by wars crowded out activities of the private sector. In the post-WWII period, not only volatility of government expenditure decreased, but it also came to move in a counter-cyclical manner. We can divide postwar history of fiscal policy since 1955 into four sub-periods. From 1955 to 1964 there was no budget deficit, and discretionary policy was carried out through adjustment of budget surplus. The period from 1965 to 1979 was, so to speak, a heyday of discretionary fiscal policy. The government tried to stabilize the economy through issue of government bonds. It was true that lags in decision making of fiscal policy were not so short, and frequently, policy missed the appropriate timing. However, in general, discretionary fiscal policy contributed to stabilize economy, especially alleviated depressions. On the other hand, it brought about accumulation of government bonds. From 1980 to 1986, cutting down budget deficit came to be a top priority for the government; thus discretionary fiscal policy was given up, which resulted in an extraordinary long depression from 1980 to 1983. In 1987, the government finally resumed expansionary fiscal policy to alleviate depression caused by sharp appreciation of yen and conflict with US government on large surplus of current balance. This policy change accelerated recovery from the depression, which ironically contributed to cutting budget deficit through increasing tax revenue.