Intertemporal Tax Smoothing and Budget Deficits in Japan: 1957–1997
Faced with a prolonged economic downturn in the 1990s, the Japanese government implemented various economic measures, including a series of large-scale public work programs. As a result, the long-term debt outstanding of the national and local governments combined is projected to soar up to 666 trillion yen or about 130% of GDP by the end of FY2001. The steep increases in the government debt give rise to the concern of its future burden and thus fiscal consolidation is now a top priority in medium- and long-term fiscal policy. There is no denying that a rapid increase in government debt might retard economic growth. However, budget deficits also play the role of a cushion that absorbs economic shocks and thus we cannot prematurely conclude a priori that budget deficitsare always undesirable.
KeywordsGovernment Expenditure Budget Deficit Welfare Loss Government Debt Budget Surplus
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