RIETI Symposium

Fiscal Reform of Japan: Redesigning the Frame of the State

Project Paper - Session 5

"Fiscal Rules/Targets and Budget Management Reform" (Abstract of Discussion Paper 04-J-014)

TANAKA Hideaki (RIETI Consulting Fellow / Visiting Fellow, Australia National University)

During the 1990s, there was a striking difference between Japan and other major members of the Organisation for Economic Co-operation and Development in the planning, implementation and results of fiscal policies. Major OECD countries, other than Japan, implemented various measures to reform budget management including the introduction of fiscal rules and targets, consequently turning the fiscal balance into a surplus. From 2000 onward, however, some of these have countries maintained a surplus while others are once again suffering from the expansion of deficits. Such a difference cannot be explained entirely by economic conditions � budget management is relevant here. This paper derives lessons on fiscal rules and targets from the experiences of other OECD countries, including Britain, France, Germany, Sweden, the Netherlands, Australia, New Zealand and the United States.

Japan, too, made some attempts at fiscal reform in the 1990s, for example introducing the Fiscal Structural Reform Law. And the country continues to make reform efforts today, but not in a way that reflects on thorough examination of past failures. The greatest problem facing Japan, with regard to its fiscal management, is the lack of a framework for budget control, specifically, one that can predict and review the macroeconomic impact of fiscal policy measures and then reflect these results when formulating future budgets. To overcome the challenges poised by the rapidly aging population, it is imperative to restore government governance by reforming budget management. The key to achieving that end is the centralization of the political decision-making system and the introduction of a multi-year budget system.

Original discussion papers in Japanese [PDF:1.0MB] >>