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Is Discretionary Fiscal Policy in Japan Effective?

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  • Rafiq Sohrab

    (International Monetary Fund)

Abstract

This paper uses a novel time-varying factor model to examine the dynamic effects of fiscal policy in Japan over the last three decades. This paper shows that despite Japan's high debt levels and long-term budgetary difficulties there is little evidence of any substantial Ricardian offset in the short-run, with private consumption and investment rising in response to discretionary government spending. Estimates drawn in the aftermath of the recent financial crisis report a potential multiplier value of around 1.2. The estimates imply that there is still scope for counter-cyclical fiscal policy despite Japan's long-term budgetary difficulties.

Suggested Citation

  • Rafiq Sohrab, 2012. "Is Discretionary Fiscal Policy in Japan Effective?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-49, August.
    • Handle: RePEc:bpj:bejmac:v:12:y:2012:i:1:p:1-49:n:32
    DOI: 10.1515/1935-1690.2459
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    References listed on IDEAS

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    Cited by:

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    3. Iwata, Yasuharu & Iiboshi, Hirokuni, 2020. "Fiscal Adjustments and Debt-Dependent Multipliers: Evidence from the U.S. Time Series," Discussion paper series HIAS-E-103, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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