ABSTRACT
Japan’s public finances are now and will continue to be for decades to come a defining political challenge, one that touches on virtually every other domestic political priority. The government has been running large budget deficits, financing nearly 20 percent of its budget through borrowing for much of the past decade. With the global economic downturn, Japan’s fiscal situation has only grown worse. Japan is now the most indebted nation in the OECD both in terms of its gross and net liabilities. Debt repayments now account for 40 percent of the total budget, and the government is finding it ever more difficult to finance its debt through bond issues. Some observers warn that the country is on the brink of a fiscal crisis. This chapter examines the government’s efforts to address its fiscal problems from three angles: 1) the government’s past attempts at fiscal consolidation; 2) reform of Japan’s budget making institutions; and 3) the different partisan approaches to fixing Japan’s public finances.
