IDEAS home Printed from
   My bibliography  Save this article

Why Did Japan's Fiscal Condition Deteriorate Markedly in the 1990s?: Changes in the Political Environment and Fiscal Policy




By focusing on the changes that were taking place in the political environment the 1990s, this article tries to explain why Japan's fiscal condition deteriorated markedly during this decade. The analysis demonstrates that a substantial portion of the actual budget deficit can be understood as an appropriate reaction (tax smoothing) to the shocks that hit the economy during this period. However, it also suggests that the deficit was excessively large in comparison with the optimal level for tax smoothing, and that the deficit may have expanded due to noneconomic factors. A series of studies on the relationship between budget deficits and the political environment has shown that a shift to a coalition government and the weakening of a regime's political base may contribute to an increase in the budget deficit. A regression analysis examining the impact of political factors on Japan's "excess" budget deficit show that the cabinet's approval rating and the share of seats in the Lower House of the Diet (parliament) held by the Liberal Democratic Party (LDP) are significantly and negatively correlated with that "excess" deficit. These results suggest that the large deficit in the 1990s was partly due to the shift to a coalition government and the weakening of the LDP's power base.

Suggested Citation

  • Toru Nakazato, 2005. "Why Did Japan's Fiscal Condition Deteriorate Markedly in the 1990s?: Changes in the Political Environment and Fiscal Policy," Japanese Economy, Taylor & Francis Journals, vol. 33(1), pages 6-22.
  • Handle: RePEc:mes:jpneco:v:33:y:2005:i:1:p:6-22 DOI: 10.1080/2329194X.2005.11045210

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    2. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
    3. Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 317-339, June.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:jpneco:v:33:y:2005:i:1:p:6-22. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.