2003 OECD Economic Surveys: Japan 2003

image of OECD Economic Surveys: Japan 2003

Despite recent acceleration of growth in Japan, OECD warns in its 2004 survey that Japan still faces serious structural problems that limit its growth potential and weaken demand.  This report carefully examines such issues as deflation, fiscal sustainability, product market competition, and further structural reforms and makes recommendations to strengthen Japan’s macroeconomic framework.

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Achieving Fiscal Sustainability

The deterioration of the fiscal situation has continued, with the general government deficit rising to a projected 7¾ per cent of GDP in 2003 and public debt soaring to more than 150 per cent. The large budget deficit mainly reflects weak economic conditions, which outweigh the authorities' consolidation efforts to date. The government is trying to reduce the deficit by keeping the level of expenditures constant as a share of GDP but, with deflation eroding the tax base, shortfalls in revenue have prevented progress thus far. One positive development is the fiscal reform initiatives launched during the past several years, which have improved the allocation of spending, thus boosting the efficiency of public expenditures...

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