What Can Japan Learn from the Swedish Budget Consolidation?

Author Name OKINA Yuri  (The Japan Research Institute)
Creation Date/NO. May 2013 13-J-032
Research Project Policy Mix for Fiscal Consolidation Without Harming Japan's Economic Recovery
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Achieving fiscal consolidation along with economic growth has become an extremely important issue in Japan. In the case of Sweden, after the financial crisis of the early 1990s, the government embarked upon a program of fiscal consolidation. Social security benefits cuts proved effective in reducing the fiscal deficit. Also, the introduction of a fiscal restructuring framework in 1997 and the formulation of rules to ensure that the fiscal deficit would be reduced reasonably and in line with the economic cycle assured Sweden's fiscal restructuring was sustainable. A major reason behind the success of Sweden's fiscal restructuring is that it was conducted in tandem with economic growth. Furthermore, it was able to be sustained largely because of increased exports due to significant exchange rate depreciation and increased productivity following companies' adoption and implementation of information technology (IT). Japan needs to cut wasteful expenditures, but, if fiscal restructuring is to be achieved along with economic growth, it will be important to ensure that fiscal restructuring is not rushed and domestic demand is not forced to contract, efforts are made to boost long-term labor productivity, long-term export bases remain—with efforts made to improve the appeal of their location, and the domestic markets are opened and high quality investments are made.