On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint: The Case of Fiscal Multiplier in Japan

Hirokuni Iiboshi, Yasuharu Iwata and Takayuki Tsuruga

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: Japan's prolonged ZLB period alongside substantial debt accumulation makes it a compelling laboratory for testing whether fiscal multipliers differ across normal and ZLB periods. This paper investigates this question using a sign- and zero-restricted TVP-VAR that jointly identifies fiscal rules and structural shocks. We find: (1) government spending and distortionary tax multipliers remain similar across regimes, contradicting standard New Keynesian predictions; (2) fiscal adjustment matters more than the debt-to-GDP ratio in shaping multiplier size; and (3) inflation responses are dampened at the ZLB across various macroeconomic shocks. Our results suggest that the ZLB is irrelevant for output but consequential for inflation.

Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:1306

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