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Rise of the Japanese fiscal state


  • Masaki Nakabayashi

    () (Graduate School of Economics, Osaka University)


A sustainable fiscal state needs to have two critical factors: A stable tax base and access to an efficient bond market. The Tokugawa Shogunate had a stable land tax revenue, which was inherited to modern Japan after the Meiji restoration. Taxation, however, was restricted by the constitution after the Meiji restoration. The parliament opposed to expansionary policy in the early 1890s, and then it turned to support that at the exchange of governmental commitment to investment in social infrastructure. The government committed to investment to increase productivity, and was allowed to raise tax rate. About the bond market, at the other hand, the government had issued bonds only in the domestic market until the mid 1890s. In the late 1890s, after Japan joined the international gold standard, the government began to issue considerable amount of bonds, and the balance surged during the Russo-Japanese war in 1904-1905. Now the London market efficiently financed Japanese government. In the early 20th century, the government was one and only one player that had established its own reputation in the international financial market. Hence balance of Japanese government bonds was the only route to import capital. This route also provided Japanese economy with macroeconomic stability, offsetting short-term current account deficit by import of capital. Japan had finally been equipped with necessary instruments as a stable and sustainable fiscal state.

Suggested Citation

  • Masaki Nakabayashi, 2008. "Rise of the Japanese fiscal state," Discussion Papers in Economics and Business 08-12, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:0812

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    References listed on IDEAS

    1. Patrick, Hugh T., 1965. "External Equilibrium and Internal Convertibility: Financial Policy in Meiji Japan," The Journal of Economic History, Cambridge University Press, vol. 25(02), pages 187-213, June.
    2. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, January.
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    Cited by:

    1. Tuan-Hwee Sng & Chiaki Moriguchi, 2014. "Asia’s little divergence: state capacity in China and Japan before 1850," Journal of Economic Growth, Springer, vol. 19(4), pages 439-470, December.
    2. KOYAMA, Mark & MORIGUCHI, Chiaki & SNG, Tuan-Hwee, 2017. "Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850," Discussion paper series HIAS-E-51, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    3. Sng, Tuan-Hwee & Moriguchi, Chiaki, 2013. "Taxation and Public Goods Provision in China and Japan before 1850," PRIMCED Discussion Paper Series 35, Institute of Economic Research, Hitotsubashi University.
    4. Osamu Saito, 2011. "The Economic History of the Restoration Period, 1853-1885," Global COE Hi-Stat Discussion Paper Series gd10-163, Institute of Economic Research, Hitotsubashi University.
    5. K. Kivanç Karaman & Sevket Pamuk, 2011. "Different Paths to the Modern State in Europe: The interaction between domestic political economy and interstate competition," LEQS – LSE 'Europe in Question' Discussion Paper Series 37, European Institute, LSE.
    6. Mandai, Yu, and Nakabayashi, Masaki, 2017. "Stabilize the Peasant Economy: Governance of Foreclosure by the Shogunate," ISS Discussion Paper Series (series F) f187, Institute of Social Science, The University of Tokyo, revised 28 Nov 2017.

    More about this item


    Fiscal state; government bonds; macroeconomic stability;

    JEL classification:

    • N45 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Asia including Middle East
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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