Challenges confronting Abenomics and Japanese public finance ?Fiscal consolidation must start by squarely facing reality?

Kazumasa Oguro

Public Policy Review, 2014, vol. 10, issue 2, 301-318

Abstract: The LDP-New Komeito coalition government is currently promoting, under Prime Minister Abe, economic policies often dubbed gAbenomics h which combines gthree policy arrows, h including gaggressive monetary relaxation, h gflexible fiscal policy, h and ggrowth strategy that encourages private sector investment. h Of the three arrows, the current government is devoting its fullest effort to the first arrow: aggressive monetary relaxation. As a result of these initiatives, there has been a continued trend of a weaker yen and higher stock prices up to the present, led by market expectations for Abenomics. Although this market behavior is actually providing a political boost to the current administration, Japanese public finance faces a host of challenges including fiscal and social security reform. First, we analyze the ultimate percentage of consumption tax rate to achieve fiscal stability in Japan, and whether fiscal consolidation dependent solely on economic growth without tax increase or cuts in expenditures would be successful. In addition, we perform a simple analysis of the total asset (percentage of GDP) of the Bank of Japan in the future, if the BOJ continues to promote gNew Phase of Monetary Easing h (both in terms of quantity and quality).

Keywords: government debt; fiscal sustainability; consumption tax rate; social security cost; Deficit Gamble; Quantitative and Qualitative Monetary Easing (search for similar items in EconPapers)
JEL-codes: E52 H2 H50 H51 H55 H62 H68 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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