The Impact of Fiscal Consolidation and Structural Reforms on Growth in Japan

Author/Editor: Berkmen, Pelin
Publication Date: January 01, 2011
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: With Japan’s public debt reaching historical levels, the need for fiscal consolidation and structural reforms have increased. As fiscal consolidation will require a sustained and large adjustment in the fiscal balance, its growth effect is a concern particularly for the short run. This paper uses the IMF’s Global Integrated Monetary and Fiscal Model to analyze the growth impact of fiscal consolidation and structural reforms. Although fiscal consolidation has short-term costs, the potential long-term benefits are considerable, and reforms that raise potential growth could support consolidation. Simulations show that the external environment also matters but domestic policies should be the priority.
Series: Working Paper No. 11/13
Subject(s): Economic growth | Economic models | Fiscal consolidation | Fiscal policy | Fiscal reforms | Japan | Monetary policy | Taxes

Author's Keyword(s): Fiscal consolidation | tax reform | structural policies
Publication Date: January 01, 2011
Format: Paper
Stock No: WPIEA2011013 Pages: 21
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