Strategies for Fiscal Consolidation in Japan

 
Author/Editor: Botman, Dennis P. J. ; Edison, Hali J. ; N'Diaye, Papa M'B. P.
 
Publication Date: February 01, 2007
 
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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: 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.
 
Series: Working Paper No. 07/37
Subject(s): Fiscal policy | Japan | Tax reforms | Aging | Adjustment policy | Debt sustainability analysis | Public finance | Economic models

Author's Keyword(s): Fiscal adjustment | aging | debt sustainability | tax reform | spillover effects | GFM
 
English
Publication Date: February 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007037 Pages: 22
Price:
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