Stock price targeting and fiscal deficit in Japan: Why did the fiscal deficit increase during Japan’s lost decades?

Shin-ichi Fukuda () and Junji Yamada

Journal of the Japanese and International Economies, 2011, vol. 25, issue 4, 447-464

Abstract: The purpose of this paper is to explain why Japan’s fiscal deficit increased so dramatically in the 1990s and the 2000s. We focus on the role of “stock price targeting” to explain why the fiscal expenditure increased so much. After presenting a simple model to describe government behavior with an optimistic view about stock price and output growth, the paper tests whether the model can explain Japan’s fiscal expenditure. The empirical results, using biannual and high-frequency data of the 1990s and the 2000s, show that the stock price targeting can track Japan’s fiscal expenditure reasonably well, especially in the 1990s. They imply that without the stock price targeting, the total amount of biannual fiscal stimulus from 1992 to 2000 would have been lower by 2.5 trillion yen on average.

Keywords: Fiscal deficit; Government spending; Stock price (search for similar items in EconPapers)
JEL-codes: H12 H30 H50 H62 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Chapter: Stock Price Targeting and Fiscal Deficit in Japan: Why Did the Fiscal Deficit Increase during Japan's Lost Decades? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:25:y:2011:i:4:p:447-464

DOI: 10.1016/j.jjie.2011.10.001

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