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Avoiding another “lost decade†: what role for fiscal policy?

In: Economic Stagnation in Japan

Author

Listed:
  • Jerry Schiff
  • Ikuo Saito

Abstract

Recent global economic stagnation has stimulated debate about the role of fiscal policy in supporting growth, notably through infrastructure spending. Japan’s experience during its “Lost Decades†provides insights on maximizing the impact of fiscal policy during downturns. First, while Japan provided early and effective fiscal stimulus, later fiscal policy was conducted in a “stop-and-go†and often pro-cyclical manner. Second, a shift in spending away from infrastructure toward transfers reduced the overall fiscal multiplier. Third, a decline in the efficiency of public investment—partly reflecting weaknesses in fiscal institutions—also reduced the impact of fiscal policy. Fourth, the concurrent dramatic shift in demographics reduced potential growth and limited fiscal space, so that fiscal policy was fighting against a strong tide. Avoiding similar problems can help countries design effective fiscal policy responses in the current economic environment.

Suggested Citation

  • Jerry Schiff & Ikuo Saito, 2018. "Avoiding another “lost decade†: what role for fiscal policy?," Chapters, in: Dongchul Cho & Takatoshi Ito & Andrew Mason (ed.), Economic Stagnation in Japan, chapter 12, pages 263-287, Edward Elgar Publishing.
  • Handle: RePEc:elg:eechap:17837_12
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