IDEAS home Printed from
   My bibliography  Save this article

Fiscal Fluctuation Risks and Intergovernmental Functional Allocation


  • Toshihiro Ihori

    (Professor, Graduate School of Economics, The University of Tokyo)


To cope with business cycle risks, a government has several fiscal measures at its disposal. First, the government may reduce the economic cost of recession. Second, the government may stimulate GDP in a recession. Furthermore, it is also useful to maintain a boom as long as possible. For each policy option, the government can use both automatic stabilizers and discretionary fiscal policy. Automatic stabilizers prepare business fluctuation risks in advance as a part of fiscal systems. At the same time, it is sometimes necessary for the government to use discretionary fiscal policy to cope with a serious recession. In terms of intergovernmental financing, local governments should play a major role, as well as central government. If both informational asymmetry and regional heterogeneity are relevant, local governments have a comparative advantage on discretionary social welfare programs. In order to maintain the sustainability of such measures, the government has to ensure the sustainability of the fiscal system. In this sense, it might be an important measure to build an automatic fiscal stabilizing mechanism into the budgetary system, which would reduce spending and raise revenues automatically when fiscal deficit accumulates.

Suggested Citation

  • Toshihiro Ihori, 2013. "Fiscal Fluctuation Risks and Intergovernmental Functional Allocation," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 1-32, January.
  • Handle: RePEc:mof:journl:ppr020a

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Marcellino, Massimiliano, 2006. "Some stylized facts on non-systematic fiscal policy in the Euro area," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 461-479, September.
    2. Magud, Nicolas E., 2008. "On asymmetric business cycles and the effectiveness of counter-cyclical fiscal policies," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 885-905, September.
    3. Toshihiro Ihori & Jun-Ichi Itaya, 2004. "Fiscal Reconstruction and Local Government Financing," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 55-67, January.
    4. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    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:mof:journl:ppr020a. 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: (Policy Research Institute). 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.