Chronological changes of government sectors’ fiscal policies and fiscal sustainability in Japan

Motonori Yoshida

Japan and the World Economy, 2023, vol. 66, issue C

Abstract: Since the end of the 1990 s, the sluggish growth of Japan’s gross domestic product (GDP) and the mired fiscal state of its public sector have provoked consternation about its public sector’s fiscal sustainability. Therefore, I estimated the fiscal reaction functions (stemming from Bohn, 1998a, 2008) with time-varying parameters for all Japan’s government sectors (for 1976Q2–2020Q1), i.e., the general government (GG), the central government (CG), the whole of the local governments (WLG), and the whole of the social security funds (WSSF), to chronologically assess their fiscal sustainability using four different models, including a least-squares with breakpoints model and a state-space model with the Kalman filter. My results demonstrate that (1) the least-squares with breakpoints model outperformed the others, and (2) although CG, WLG, and WSSF often sustainably managed their finances during the analysis term, GG has failed to implement a sustainable fiscal policy from the mid-1990 s (3) CG and WSSF adjusted their fiscal postures according to Japan’s economic state. Fiscal severity caused WLG to change its fiscal posture.

Keywords: Fiscal sustainability; Fiscal reaction function; Least squares with breakpoints; State-space model; Kalman filter (search for similar items in EconPapers)
JEL-codes: E61 E62 H11 H61 H62 H63 H72 H74 H77 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:66:y:2023:i:c:s092214252300004x

DOI: 10.1016/j.japwor.2023.101178

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