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Strategies for Fiscal Consolidation in Japan

Dennis P Botman, Papa M N'Diaye and Hali Edison ()

No 07/37, IMF Working Papers from International Monetary Fund

Abstract: Japan's key fiscal challenge is to put public finances on a more sustainable footing. This paper investigates the macroeconomic implications of alternative fiscal strategies for Japan using the IMF's Global Fiscal Model. The results suggest that: (i) an adjustment package that achieves primary balance through lower social transfers and government spending and a higher VAT is the most viable option and has a smaller negative impact on growth than other fiscal measures; (ii) achieving primary balance is not sufficient to stabilize the net debt ratio; (iii) prefunding future aging costs provides greater long-term benefits compared with less front-loaded strategies; (iv) tax reform involving shifting from corporate taxation to consumption taxation could mitigate the short-term output losses associated with fiscal consolidation; and (v) the spillovers to the rest of the world from consolidation in Japan are positive in the medium term, but modest.

Keywords: Economic models; Fiscal adjustment; Aging; Fiscal policy; Adjustment policy; Debt sustainability; Public finance; Japan; Tax reforms; tax reform, spillover effects, GFM, taxation, consumption tax, government spending, Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation, Subsidies, and Revenue: General, Fiscal Policies and Behavior of Economic Agents: General, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-mac and nep-pbe
Date: 2007-02-01
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Journal Article: Strategies for fiscal consolidation in Japan (2009) Downloads
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