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Local Government Spending: Solving the Mystery of Japanese Fiscal Packages

Hiroko Ishii and Erika Wada ()
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Hiroko Ishii: Peterson Institute for International Economics
Erika Wada: Peterson Institute for International Economics

No WP98-5, Working Paper Series from Peterson Institute for International Economics

Abstract: Since the asset-price bubble burst in 1990, the Japanese government has repeatedly announced fiscal measures to boost the economy. The government claims that discretionary fiscal spending from fiscal year 1992 to 1996 (although there was no stimulus measure in 1996) amounted to more than 65 trillion yen: half of that supposed stimulus went to public works, such as construction and infrastructure, and 20 percent of it took the form of tax cuts. Despite these economic measures, Japanese economic growth has been stagnant for more than 6 years, except for 1996, when the Japanese economy grew by approximately 3 percent.3 Why haven't the Japanese fiscal packages worked? The large part of the answer, which we address in this paper, has been the biggest part of the announced packages, namely, public spending.

Date: 1998
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