Japan's Fiscal Policy: Sustainability of Government Deficits

The purpose of this paper is to analysis the Japanese fiscal policy particularly from the viewpoint of the sustainability problem of government bond policy and the fiscal reconstruction movement in Japan. This paper first summarizes Japan's fiscal policies in the 1990s. Then, we investigate the macroeconomic impact of government debt and fiscal difficulties of heavy dependency of debt finance in the public sector. We find that fiscal sustainability may become a serious issue. We also explore political constraints to the fiscal reconstruction movements. In order to realize successful fiscal reconstruction, the central government needs to restrain lobbying activities of local political groups.