Premium
Is Abe's Fiscal Policy Ricardian? What Does the Fiscal Theory of Prices Mean for Japan?
Author(s) -
Doi Takero
Publication year - 2018
Publication title -
asian economic policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.58
H-Index - 20
eISSN - 1748-3131
pISSN - 1832-8105
DOI - 10.1111/aepr.12199
Subject(s) - economics , fiscal policy , fiscal union , fiscal sustainability , stimulus (psychology) , fiscal imbalance , monetary economics , consolidation (business) , fiscal federalism , macroeconomics , keynesian economics , finance , market economy , decentralization , psychology , psychotherapist
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.