Fiscal Fluctuation Risks and Intergovernmental Functional Allocation

Toshihiro Ihori
Additional contact information
Toshihiro Ihori: Professor, Graduate School of Economics, The University of Tokyo

Public Policy Review, 2013, vol. 9, issue 1, 1-32

Abstract: To cope with business cycle risks, a government has several fiscal measures at its disposal. First, the government may reduce the economic cost of recession. Second, the government may stimulate GDP in a recession. Furthermore, it is also useful to maintain a boom as long as possible. For each policy option, the government can use both automatic stabilizers and discretionary fiscal policy. Automatic stabilizers prepare business fluctuation risks in advance as a part of fiscal systems. At the same time, it is sometimes necessary for the government to use discretionary fiscal policy to cope with a serious recession. In terms of intergovernmental financing, local governments should play a major role, as well as central government. If both informational asymmetry and regional heterogeneity are relevant, local governments have a comparative advantage on discretionary social welfare programs. In order to maintain the sustainability of such measures, the government has to ensure the sustainability of the fiscal system. In this sense, it might be an important measure to build an automatic fiscal stabilizing mechanism into the budgetary system, which would reduce spending and raise revenues automatically when fiscal deficit accumulates.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://warp.da.ndl.go.jp/info:ndljp/pid/11217434/w ... w/ppr020/ppr020a.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mof:journl:ppr020a

Access Statistics for this article

More articles in Public Policy Review from Policy Research Institute, Ministry of Finance Japan Contact information at EDIRC.
Bibliographic data for series maintained by Policy Research Institute ().