RIETI Symposium

Fiscal Reform of Japan: Redesigning the Frame of the State


Session 3: Fiscal System in Historical Context - Lessons from the Past and for the Future
"Political system and fiscal performance: Japan's historical experience"
OKAZAKI Tetsuji (RIETI Faculty Fellow / Professor of Economics, University of Tokyo)
"The Role of Public Awareness in Fiscal Reform"
INOKI Takenori (Professor, International Research Center for Japanese Studies)

In the third session, Faculty Fellow Tetsuji Okazaki presented his report, "Political System and Fiscal Performance: Japan's Historical Experience." Using prewar fiscal data, he discussed the relationship between Japan's administrative and fiscal systems and fiscal performance. His conclusion was that prior to World War I, fiscal discipline had been maintained through the influence of the "Genro" ("elderly statesmen") - an extra-constitutional organization. However, decentralization of the political system after World War I, as seen in the decline of the function of the Genro and the formation of political party-based cabinets, had led to fiscal deficits.

Fellow Mieko Nakabayashi then presented her report on "The Role of Public Awareness in Fiscal Reform." She said the reasons for Japan's fiscal deficit were structural, and that it was important to boost fiscal transparency in order to correct this. She touched upon her experiences as a staff member of the U.S. Congress to show how public awareness of fiscal policy increased in the United States, and she introduced the activities of nonprofit organizations (NPO) and the active role played by highly specialized organizations such as the Congressional Budget Office. In addition, she pointed out that it was important for transparency to improve and public awareness regarding fiscal affairs to increase by having experts on fiscal matters serve as a bridge between the public and the government.

Takenori Inoki, professor at the International Research Center for Japanese Culture, commented on these reports. He praised the Okazaki report for being a very skillful essay that verified the relationship between political history and fiscal policy through statistical tests. However, he also commented that the report focused on the central government's general account budget, and said he was interested in hearing how the outlays of local governments were affected by the existence of political party-based cabinets. He noted that there was no analysis of the international environment surrounding Japan at that time, and asked what Faculty Fellow Okazaki thought of this point. Furthermore, he pointed out that it was more appropriate to believe that it was the decline in power of the Satsuma and Choshu clans, rather than the reduced influence of the Genro, that had led to less fiscal discipline. As for the Nakabayashi report, he praised it for being a high-quality running commentary based on her experience as a member of the Congressional staff. However, he observed that the fact that the U.S. has a good system and the empirical reasons why Japan does not have such a system are different issues, and suggested that cultural differences between Japan and Western countries might be one reason for this. As examples, he pointed out that the concept of accountability had its roots in England, where the king had to explain how he used his money - an idea unfamiliar to Japan - and that artificial organizations such as NPOs were created in the U.S. to help foster public spirit, but that in Japan such entities are often seen as vested interest groups.

In response, Faculty Fellow Okazaki said that study of local government finances was a future topic, and that the changes in Japan's systems should be considered more the result of endogenous factors rather than the international environment. Fellow Nakabayashi said that in a situation where fiscal issues and public awareness are easily separated, she had wanted to stress that she was able to find the years in which public interest in fiscal issues suddenly increased thanks to the existence of statistics covering a long period of time in the form of the U.S. Deficit Reduction Fund (created through donations from the public), and that she felt it was important to provide an account of the fiscal environment surrounding those years and the roles played by NPOs and expert organizations amid the rise in public interest.

In the discussions that followed, Shigeki Morinobu, visiting professor at the National Graduate Institute for Policy Studies, said that from his own experiences in the U.S., there were instances when NPOs were huge interest groups that put pressure on the fiscal system. Yasushi Iwamoto, professor at Hitotsubashi University's Department of Economics, questioned whether the rise in interest in fiscal issues in the U.S. as reported by Fellow Nakabayashi was only temporary, and whether it was possible for it to influence fiscal reform for a continuous period of time. He added that a system such as that in Australia, where residents are obliged by law to vote, might be effective. As to the response by Faculty Fellow Okazaki, Yukinobu Kitamura, professor at Hitotsubashi University's Institute of Economic Research, said it was difficult to consider Japan's departure from the gold standard as an endogenous change. On this point, Faculty Fellow Okazaki acknowledged that this was certainly true in terms of the departure from the gold standard, but held that such matters as the actions of the Bank of Japan could have been seen as endogenous factors.

(Text compiled and edited by KIMURA Yuji, RIETI Research Staff)