Journal of Business & Economic Policy

ISSN 2375-0766 (Print), 2375-0774 (Online) DOI: 10.30845/jbep

The Effectiveness of Fiscal Expansion under Huge Debt: The Recent Japanese Case
Yutaka Kurihara

Fiscal expansion, especially under debt, has been avoided because of negative economic impacts. Most policymakers tackle this problem. Some countries, such as Japan, have introduced fiscal expansion despite huge debt. Some European countries have tried to expand fiscal expenditures under these circumstances with high interest rates that undermine investments and criticism by other countries. This paper examines whether or not fiscal expansion under huge debt has been effective in Japan. Empirical results show such fiscal expansion is effective. Also, effects of fiscal expansion are short-lived. Fiscal expansion cannot be avoided despite economic debt; however, for fiscal policy, limitations of this approach should be considered. Unlimited fiscal expansion is dangerous. Household saving habits in Japan support the use of government bonds; however, there is some possibility that foreign investors would turn their back on Japan if the Japanese economic future is perceived negatively..

Full Text: PDF