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2008 OECD Economic Surveys: Japan 2008

image of OECD Economic Surveys: Japan 2008

This 2008 edition of OECD's periodic survey of the Japanese economy finds Japan experiencing the longest expansion in its post-war history.  Moving forward, this survey examines some of Japan's key challenges including bringing an end to deflation, achieving progress on fiscal consolidation, reforming the tax system, enhancing the productivity of the services sector, and coping with population ageing dualism.

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Achieving progress on fiscal consolidation by controlling government expenditures

With gross debt of 180% of GDP, further measures to reduce the large budget deficit are increasingly urgent. An improvement in the budget balance of between 4% and 5% of GDP (on a primary budget basis) is needed just to stabilise the government debt to GDP ratio, a first step towards the government’s goal of lowering the ratio in the 2010s. The first priority is to further cut government spending, which has fallen by 2½ percentage points as a share of GDP during the past five years, focusing on public investment and the government wage bill. Expenditure reductions should be accompanied by reforms to improve efficiency in the public sector. In addition, policies to limit the increase in social spending, in the context of rapid population ageing, are essential for fiscal consolidation. However, expenditure cuts alone are insufficient to achieve Japan’s fiscal objectives, making it necessary to raise additional revenue.

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