Strategies for Fiscal Consolidation in Japan

Dennis Botman, Papa N'Diaye and Hali Edison ()

No 2007/037, IMF Working Papers from International Monetary Fund

Abstract: Japan's key fiscal challenge is to put public finances on a more sustainable footing. This paper investigates the macroeconomic implications of alternative fiscal strategies for Japan using the IMF's Global Fiscal Model. The results suggest that: (i) an adjustment package that achieves primary balance through lower social transfers and government spending and a higher VAT is the most viable option and has a smaller negative impact on growth than other fiscal measures; (ii) achieving primary balance is not sufficient to stabilize the net debt ratio; (iii) prefunding future aging costs provides greater long-term benefits compared with less front-loaded strategies; (iv) tax reform involving shifting from corporate taxation to consumption taxation could mitigate the short-term output losses associated with fiscal consolidation; and (v) the spillovers to the rest of the world from consolidation in Japan are positive in the medium term, but modest.

Keywords: WP; GDP; debt ratio; interest rate; consumer (search for similar items in EconPapers)
Pages: 22
Date: 2007-02-01
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Citations: View citations in EconPapers (3)

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Journal Article: Strategies for fiscal consolidation in Japan (2009)
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