NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fiscal Remedies for Japan's Slump

Laurence Ball

NBER Working Paper No. 11374*
Issued in May 2005
NBER Program(s):   EFG    ME    PE

This paper asks how a fiscal expansion would affect Japan. It uses a textbook-style macro model calibrated to fit the Japanese economy. According to the results, Japan’s output slump would be ended by a fiscal transfer of 6.6% of GDP. This policy raises the debt-income ratio in the short run, but it reduces this ratio in the long run through higher inflation and tax revenue. The financing of the transfer -- bonds or money -- affects debt in the short run but not the long run.

*Published: Ball, Laurence. "Fiscal Remedies for Japan's Slump." Monetary Policy with Very Low Inflation in the Pacific Rim. (2006): 279-304.

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