Is Abe's Fiscal Policy Ricardian? What Does the Fiscal Theory of Prices Mean for Japan?

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3 Citations (Scopus)

Abstract

The second arrow of Abenomics is flexible fiscal policy. However, it does not mean just fiscal stimulus as the Abe administration decided on the fiscal consolidation target of achieving a primary surplus by fiscal year 2020. Improving the primary balance implies making government debt more sustainable. Although the consumption tax rate was raised from 5% to 8% in April 2014, the Abe administration has decided twice to postpone increasing the consumption tax from 8% to 10%. In addition, a fiscal stimulus package was implemented. We use a Fiscal Stance Index to examine fiscal policy from the viewpoint of fiscal sustainability and a Markov switching model to examine fiscal policy from the viewpoint of the fiscal theory of the price level, and find that the Abe's fiscal stance is not Ricardian.

Original languageEnglish
Pages (from-to)46-63
Number of pages18
JournalAsian Economic Policy Review
Volume13
Issue number1
DOIs
Publication statusPublished - 2018 Jan 1

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Keywords

  • fiscal and monetary policy regime
  • fiscal stance index
  • fiscal sustainability
  • Japanese fiscal policy
  • the fiscal theory of the price level

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Political Science and International Relations
  • Management, Monitoring, Policy and Law

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