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What causes changes in the effects of fiscal policy? A case study of Japan

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  • Kameda, Keigo
Abstract
In the past two decades, the Japanese government has spent a considerable amount of money to counteract the severe recessions that have recurred since the early 1990s. Numerous studies have pointed out that the effects of these expenditures have diminished since around the 1990s. However, none of these studies has statistically explored the reasons for this diminution, which they implicitly or explicitly mention. The purpose of this study is to statistically investigate these reasons, using a threshold vector autoregression (VAR) in which the causes pointed out in the literature are adopted as the threshold. If the null hypothesis that the estimated parameters are equal under each regime is rejected, we can conclude that a given cause does affect the macroeconomic structure and, in turn, the fiscal policy effects. We then estimate the impulse response functions in both sample periods, as constructed on the basis of threshold estimates, and compare the effects of fiscal policy in each period.

Suggested Citation

  • Kameda, Keigo, 2014. "What causes changes in the effects of fiscal policy? A case study of Japan," Japan and the World Economy, Elsevier, vol. 31(C), pages 14-31.
    • Handle: RePEc:eee:japwor:v:31:y:2014:i:c:p:14-31
    DOI: 10.1016/j.japwor.2014.04.003
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    7. Yuka Nakajima & Jun Matsushima, 2022. "Japan s Low-growth Economy from the Viewpoint of Energy Quality," International Journal of Energy Economics and Policy, Econjournals, vol. 12(1), pages 460-468.
    8. Kansho Piotr Otsubo, 2018. "The Effects of Fiscal and Monetary Policies in Japan: What Combination of Policies Should Be Used?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01n02), pages 1-25, February.
    9. Ryu-ichiro Murota & Yoshiyasu Ono, 2015. "Fiscal Policy under Long-run Stagnation: A New Interpretation of the Multiplier Effect," ISER Discussion Paper 0937, Institute of Social and Economic Research, Osaka University.
    10. Morita, Hiroshi, 2015. "State-dependent effects of fiscal policy in Japan: Do rule-of-thumb households increase the effects of fiscal policy?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 49-61.
    11. Kameda, Keigo & Lu, Zhenkun & Fukui, Masaki, 2022. "Comparison of the productivity of public capital by project type: Central-government, subsidized-local, and unsubsidized-local projects in Japan," Japan and the World Economy, Elsevier, vol. 61(C).
    12. Morita, Hiroshi, 2022. "On the relationship between fiscal multipliers and population aging in Japan: Theory and empirics," Economic Modelling, Elsevier, vol. 108(C).
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    More about this item

    Keywords

    Threshold vector autoregression; Fiscal policy; Demand enhancing effect; Financial stress; Non-Keynesian effect;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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