Is Discretionary Fiscal Policy in Japan Effective?

Rafiq Sohrab ()
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Rafiq Sohrab: International Monetary Fund

The B.E. Journal of Macroeconomics, 2012, vol. 12, issue 1, 49

Abstract: This paper uses a novel time-varying factor model to examine the dynamic effects of fiscal policy in Japan over the last three decades. This paper shows that despite Japan's high debt levels and long-term budgetary difficulties there is little evidence of any substantial Ricardian offset in the short-run, with private consumption and investment rising in response to discretionary government spending. Estimates drawn in the aftermath of the recent financial crisis report a potential multiplier value of around 1.2. The estimates imply that there is still scope for counter-cyclical fiscal policy despite Japan's long-term budgetary difficulties.

Keywords: fiscal policy; latent factors; stabilisation; fiscal multipliers; time-variation (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1515/1935-1690.2459

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