RIETI Symposium

Fiscal Reform of Japan: Redesigning the Frame of the State

Project Paper - Session 3

"Political system and fiscal performance: Japan's historical experience" (Abstract of Discussion Paper 04-J-009)

OKAZAKI Tetsuji (RIETI Faculty Fellow / Professor of Economics, University of Tokyo)

This paper examines the relationships between the political system and fiscal performance of a country by focusing on prewar Japan. During the several decades following its establishment as a modern state, Japan experienced drastic changes both in its political system and fiscal performance. This provides valuable data for empirically examining the relationships between the two.
The Imperial Constitution of prewar Japan laid down a decentralized political system with two aspects. Firstly, state affairs and supreme command were clearly segregated. Secondly, in state affairs, a state minister was given the authority to single-handedly assist or give advice to the Emperor in matters requiring formal approval, under the "tandoku hohitsusei" ("sole assistance system"). Under this framework, the military, bureaucrats and political parties - components constituting the political system - began to have their own ways after the end of the Russo-Japanese War, imposing pressure to expand budget outlays. Prior to World War I, however, the extra-constitutional body of "genro" ("elderly statesmen") contributed to maintaining the unity of the country and fiscal discipline. In contrast, during and after the war, however, the function of the "genro" deteriorated and it became difficult to maintain fiscal discipline under a decentralized political system. It is quantitatively observable that the political-party cabinet system, which took root in the 1920s, has contributed to the overall expansion of the budget. The 1930s saw a substantial increase in the overall influence of the military. Not only that, the fragmentation of the decision-making authority within the military proceeded. Japan's fiscal primary balance, which had been basically in surplus during the years following the Russo-Japanese War, turned into chronic deficits from the 1920s onward. These changes in Japan's fiscal performance reflect the changes that took place in the political system.

Original discussion papers in Japanese [PDF:340KB] >>