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

21 Pages Posted: 1 Feb 2011

See all articles by Pelin Berkmen

Pelin Berkmen

International Monetary Fund (IMF)

Date Written: January 2011

Abstract

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.

Keywords: Economic growth, Economic models, Fiscal consolidation, Fiscal policy, Fiscal reforms, Japan, Monetary policy, Taxes

Suggested Citation

Berkmen, S. Pelin, The Impact of Fiscal Consolidation and Structural Reforms on Growth in Japan (January 2011). IMF Working Paper No. 11/13, Available at SSRN: https://ssrn.com/abstract=1751423

S. Pelin Berkmen (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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