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Change in the Flow of Funds and the Fiscal Rules Needed for Fiscal Stabilization


  • Naoyuki Yoshino

    (Professor, Faculty of Economics, Keio University)

  • Tetsuro Mizoguchi

    (Assistant Professor, Faculty of Economics and Business Administration, Reitaku University)


Here we explain the features of the flow of funds in Japan across time by using the flow-of-funds table. We prove that the volume of the flow of funds has decreased in various sectors compared with the boom period of the 1980s. Especially in recent years, an increased volume of corporate savings, thanks to an increase in the overseas income balance, has been deposited as liquid savings and used to purchase government bonds through financial institutions. On the other hand, the volume of the flow of funds from financial institutions to corporate investments has reduced dramatically recently. We then move on to focus on the differences between the Greek and Japanese government bond markets. Although Japan's government debt ratio to GDP is bigger than that of Greece, the Japanese government bond market has remained stable. We take note of the demand side of government debt, and explain the differences between the Japanese government bond market, which enjoys a big demand from the domestic financial institutions and investors, and the Greek one, which relies heavily upon foreign investors for demand. We also explain the difference in the stabilizing measures of government bond markets between the two countries by using demand-side analysis. We point out that the Domar condition, which has so far led the discussion about the stabilization of government bond markets, was derived only from the supply-side analysis of government bonds, and thus does not always prove to be valid. Instead, we derive the stabilizing conditions for government bond markets from a model which considers government bond demand. We also present some rules for fiscal stabilization and explain the fiscal rules corresponding to Taylor's rule for monetary policy. Finally, we conclude that the issuance of a large volume of debt-covering government bonds should be restrained, and that Japan's funds should be guided to contribute to the accumulation of private capital stock for the recovery of the growth of the Japanese economy, and we conduct model analysis regarding its appropriate levels.

Suggested Citation

  • Naoyuki Yoshino & Tetsuro Mizoguchi, 2013. "Change in the Flow of Funds and the Fiscal Rules Needed for Fiscal Stabilization," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 51-70, January.
  • Handle: RePEc:mof:journl:ppr020c

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    References listed on IDEAS

    1. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 949-963.
    2. Masaya Sakuragawa & Kaoru Hosono, 2010. "Fiscal Sustainability Of Japan: A Dynamic Stochastic General Equilibrium Approach," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 517-537, December.
    3. Cargill, Thomas F. & Yoshino, Naoyuki, 2003. "Postal Savings and Fiscal Investment in Japan: The PSS and the FILP," OUP Catalogue, Oxford University Press, number 9780199257348, June.
    4. Naoyuki Yoshino & Tetsuro Mizoguchi, 2010. "The Role of Public Works in the Political Business Cycle and the Instability of the Budget Deficits in Japan," Asian Economic Papers, MIT Press, vol. 9(1), pages 94-112, Winter/Sp.
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    Cited by:

    1. Naoyuki Yoshino & Uwe Vollmer, 2014. "The sovereign debt crisis: why Greece, but not Japan?," Asia Europe Journal, Springer, vol. 12(3), pages 325-344, September.
    2. Yoshino, Naoyuki & Taghizadeh-Hesary, Farhad, 2014. "Three Arrows of “Abenomics” and the Structural Reform of Japan: Inflation Targeting Policy of the Central Bank, Fiscal Consolidation, and Growth Strategy," ADBI Working Papers 492, Asian Development Bank Institute.
    3. Yoshino, Naoyuki & Mizoguchi, Tetsuro & Taghizadeh-Hesary, Farhad, 2015. "Optimal Fiscal Policy Rule for Achieving Fiscal Sustainability: A Japanese Case Study," ADBI Working Papers 531, Asian Development Bank Institute.


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