Economic Stagnation in Japan
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Economic Stagnation in Japan

Exploring the Causes and Remedies of Japanization

Edited by Dongchul Cho, Takatoshi Ito and Andrew Mason

Japan’s dramatic transformation from economic success to economic stagnation offers important policy lessons to advanced countries everywhere that are struggling with stagnation. The term ‘Japanization’ is often used by economists to describe long-term stagnation and deflation. Symptoms include high unemployment, weak economic activity, interest rates near zero, quantitative easing, and population aging. In the global context, what can governments do to mitigate the downward trends experienced by Japan? This judiciously timed book investigates in depth the causes of Japan’s ‘lost decades’ versus the real recovery achieved by the United States, and the lessons that can be learned.
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Chapter 13: Lessons for Korea from Japan’s fiscal policy

SeongTae Kim

Abstract

SeongTae Kim investigates Japan’s experiences since the 1990s to find lessons for Korea’s future fiscal policy. Japan’s deteriorating fiscal soundness is attributed to the decline in revenue (from tax cuts, recession and deflation) and increases in expenditure (largely for social welfare, local tax grants and public works, exacerbated by weakness in the legislative-executive checks-and-balances system). By contrast, Korea in the 2010s is in better fiscal shape than Japan was in the early 1990s, with a much lower debt-to-GDP ratio, structural balances still positive, a slower growth-rate decline, more stability in its tax-burden ratios and a better checks-and-balances system, although the share of non-age-related central government expenditure is still far larger in Korea than the OECD average. To ensure longer-term fiscal soundness and not repeat Japan’s experiences, comprehensive reform of fiscal policy is inevitable, with special attention to the tax base and social welfare expenditure in an aging society.

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