TRƯỜNG ĐẠI HỌC NGOẠI THƯƠNG CƠ SỞ I HÀ NỘI KHOA
QUẢN TRỊ KINH DOANH

TIỂU LUẬN MÔN KINH TẾ VĨ MÔ
ĐỀ TÀI: FISCAL POLICY
SINH VIÊN:
1.

PHAN TUẤN PHONG ( MSV:1912280540)
2. LÂM BẢO NGỌC ( MSV:1914280022)
3. TẠ VŨ DUY ANH ( MSV:1912280002)

4.

NGUYỄN THỊ MAI LY ( MSV:1912280715)

5.

NGUYỄN MINH TUẤN ( MSV:1912280028)

6.

PHẠM QUỲNH PHƯƠNG ( MSV:1912280724)
7.

PHẠM MINH HẠNH ( MSV:1912280516)

8.

VŨ PHƯƠNG LINH ( MSV:1912280528)

9. NGÔ MINH HẰNG ( MSV:1912280709)
10.

TRƯƠNG MINH NGỌC ( MSV:1912280023)
LỚP: K58 ANH 03 CTTT QUẢN TRỊ
NGÀNH: QUẢN TRỊ KINH DOANH QUỐC TẾ

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Hà Nội, ngày 18 tháng 9 năm 2020.
MỤC LỤC
I. INTRODUCTION……………………………………………………………02
II.

IV.

ECONOMIC PROBLEMS IN JAPAN……………………………………....04

III.
HOW JAPAN USED FISCAL POLICY TO DEAL WITH ECONOMIC
PROBLEMS? – ABENOMICS………………………………………………05
THE STRENGTHS AND WEAKNESSES OF FISCAL POLICY………….13
REFERENCES……………………………………………………………….15

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I.
INTRODUCTION
1. What is fiscal policy?
Definition: Fiscal policy is the use of government
revenue collection (taxes or tax cuts) and expenditure (spending) to
influence a country's economy.
Stances: Depending on the state of the economy, fiscal policy
may reach for different objectives: its focus can be to restrict economic
growth by mediating inflation or, in turn, increase economic growth by
decreasing taxes, encouraging spending on different projects that act as
stimuli to economic growth and enabling borrowing and spending. The
three stances of fiscal policy are the following:
Neutral fiscal policy is usually undertaken when an economy is in neither
a recession nor an expansion. The amount of government deficit spending
(the excess not financed by tax revenue) is roughly the same as it has been
on average over time, so no changes to it are occurring that would have an
effect on the level of economic activity.
Expansionary fiscal policy is used by the government when trying to balance the
contraction phase in the business cycle. It involves government spending exceeding
tax revenue by more than it has tended to, and is usually undertaken during
recessions. Examples of expansionary fiscal policy measures include increased
government spending on public works (e.g., building schools) and providing the
residents of the economy with tax cuts to increase their purchasing power (in order
to fix a decrease in the demand).

Contractionary fiscal policy, on the other hand, is a measure to increase
tax rates and decrease government spending. It occurs when government
deficit spending is lower than usual. This has the potential to slow

economic growth if inflation, which was caused by a significant increase
in aggregate demand and the supply of money, is excessive. By reducing
the economy's amount of aggregate income, the available amount for
consumers to spend is also reduced. So, contractionary fiscal policy
measures are employed when unsustainable growth takes place, leading to
inflation, high prices of investment, recession and unemployment above
the "healthy" level of 3%– 4%.
2. Purpose of using Fiscal Policy
Methods of Fiscal Policy funding: Governments spend money on a
wide variety of things, from the military and police to services such as
education and health care, as well as transfer payments such as welfare
benefits. This expenditure can be funded in a number of different ways:
Taxation
Seigniorage, the benefit from printing money
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Borrowing money from the population or from abroad
Dipping into fiscal reserves
Sale of fixed assets (e.g., land)
How does fiscal policy work: When politicians influence the economy, they
have two main tools at their disposal; fiscal policy and monetary policy.

Monetary Policy
Monetary policy is the main focus of a nation’s central bank. It involves
regulating interest rates, i.e., effectively regulating the cost of borrowing,
and the money supply.
The US Federal Reserve, the Bank of England, and other central banks

manage monetary policy. They do so to control inflation and stabilize
their currency.
Put simply; they use monetary policy to ensure that the economy is
following the right path.
Fiscal Policy
Fiscal policy refers to government spending policies that impact
macroeconomic conditions. Governments carry out policy through public
spending. Government borrowing and the collection of taxes also form part
of fiscal policies.
Through fiscal policy, governments attempt to bring down unemployment,
stabilize business cycles, and influence interest rates. Additionally, in times
of recession, they adjust their policy to kick-start the economy.
I.

ECONOMIC PROBLEMS IN JAPAN

Until 2002, Japan was mired in a prolonged period of stagnation – the
“lost decade”–which saw its per capita income drop from the fifth highest
in the OECD area in 1992 to only 19th in 2002. The miracle economy that
mesmerized the world in the 1980s looked decidedly weak.
Japan's equity and real estate bubbles burst starting in the fall of 1989.
Equity values plunged 60% from late 1989 to August 1992, while land
values dropped throughout the 1990s, falling an incredible 70% by 2001.
Moreover, the Bank of Japan (BoJ), Japan’s Central Bank had made
several mistakes that may have added to and prolonged the negative
effects of the bursting of the equity and real estate bubbles.
From 1991 to 2003, the Japanese economy, as measured by GDP, grew
only 1.14% annually, well below that of other industrialized nations.
Over the period of 1995 to 2007, GDP fell from $5.33 trillion to $4.36
trillion in nominal term, real wages fell around 5%, while the country

experienced a stagnant price level.
In 1997, GDP of Japan decreased by 0.7% and continued to decreased
by 1.8% in the following year.
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Since the beginning of 1998, the Japanese economy fell into a
serious recession.
The world financial crisis in 2008 once again caused Japan's
economic recession, GDP decreased by 5% in 2009.
On the monetary side, the short-term interest rate is already close to zero
at 0.5%, while the large budget deficit and high level of public debt rule
out fiscal stimulus as an option. Indeed, Japan’s public debt has reached
170% of GDP, the highest ratio ever recorded in the OECD area
Expressed by financial and monetary system crisis, the yen, stocks fell
sharply, bad debts increased, production stagnated and unemployment
rate rose to a record.
In 2012, with efforts to solve deflation, The Prime Minister Abe
Shinzo launched “Abenomics” Policy.
II.
HOW JAPAN USED FISCAL POLICY TO DEAL WITH
ECONOMIC PROBLEMS? – ABENOMICS.
1.
The difficult situation:
In the early 1990s, Japan’s real estate and stock market bubble burst and
the economy went into a tailspin. Since then, Japan has suffered sluggish
economic growth and recessions (known as “Japan’s Lost Decade”).
Japan’s growth rate during this period has been among the lowest of the

major developed countries of the world.
Japan's equity and real estate bubbles burst starting in the fall of 1989.
Equity values plunged 60% from late 1989 to August 1992, while land
values dropped throughout the 1990s, falling an incredible 70% by 2001.
Moreover, the Bank of Japan (BoJ), Japan’s Central Bank had made
several mistakes that may have added to and prolonged the negative effects
of the bursting of the equity and real estate bubbles.

During 1995–2002, for example, the annualized growth rate of
Japan’s real gross domestic product (GDP) averaged only 1.2%. This
was lower than the eurozone average of 2.7%, and was less than the
other Group of 7 countries: Canada (3.4%), France (2.3%), Germany
(1.4%), Italy (1.8%), the United Kingdom (2.7%), and the United
States (US) (3.2%).
Japan’s performance was also poor in comparison to the 2.7% average of
the Organisation for Economic Co-operation and Development (OECD),
and was significantly less than that of the larger OECD countries:
Australia (3.8%), the Republic of Korea (5.3%), Mexico (2.6%) the
Netherlands (2.9%), and Spain (3.3%) (Horioka 2006).

Figure 1 shows the trend of Japan’s real GDP and the real GDP
growth rate during 1990–2013. After Japan’s economic bubble burst
in the early 1990s Japanese real GDP started to decline sharply. This
long-term recession lasted almost 25 years.

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2.

Causes of long-term
recession: 2.1. Aging
Population

Japan has achieved the highest life expectancy in the world, but
its retirement age is still 65 years of age.
Figure 2 shows that the working population (i.e., those aged between
15 and 64) is diminishing drastically while the elderly
population (those aged 65 and older) is growing rapidly.
The aging population and the diminishing workforce is one of the
biggest causes of long-term recession in Japan. On the other hand,
Japan’s method for calculating wages is based on seniority.

Seniority-based wage systems make it difficult for companies to hire
elderly people. They are often forced to retire, even though many of
them would like to continue working. Because of the aging
population, social welfare costs have started to increase and
currently one-third of government spending is allocated to this,
while the government budget deficit is rising every year.

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2.2 Banking Behavior
In the 1980s, Japanese banks issued loans based on collateral. From

1991 onwards, land prices started to decline and banks began to
accumulate bad loan assets. The number of banking failures started
to increase immediately after the financial bubble burst, reaching a
peak almost one decade later.

Figure 4 shows that before the bubble burst, there was no banking
failure and assistance from the Deposit Insurance Corporation of
Japan (DICJ), the financial system’s insuring organization, was
almost at zero. When banks began to fail after the bubble burst, the
DICJ began to raise financial assistance to help the failed banks.
This assistance also peaked a decade after the bursting of the bubble.
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Another obstacle in the banking system is the Basel capital
requirements. Basel I regulations forced banks to hold 8% capital,
regardless of economic conditions. Japanese banks started to reduce
their loans to avoid a shortage of capital, which created a credit
crunch, and it became difficult for SMEs and startup businesses to
borrow money from banks.
Figure 5 shows the results of a survey conducted by the Bank of Japan
investigating the difficulty for large firms and small and medium-sized
enterprises to raise money from banks or from the capital markets.

Data points below zero signify difficulty for companies in raising
money. The figure shows that smaller enterprises find it harder to
raise money than larger firms.


2.3 Reduced Effectiveness of Fiscal Policy
Kiichi Miyazawa, Prime Minister of Japan from 1991 to 1993,
implemented fiscal policy when the Japanese economy was slow
to recover in the 1990s. He followed a Keynesian policy, hoping
for a high growth period in Japan in which public investment
would help boost the Japanese economy.
However, major highways and bridges had already been completed
and investment in new infrastructure did not help the economy due to
a decline in the multiplier for public investment. Public investment in
Japan has tended to produce low stimulative effects on gross national
product because of ineffective distribution. The bulk of public
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investment has been concentrated in the countryside, and research shows
that such investment has a much smaller impact on rural areas than on
urban areas and that public investment in the agriculture sector has been
much less effective than public investment in the industrial and service
sectors (Yoshino and Sakakibara 2002).

The result of this increasing rural and agricultural bias in the
allocation of public investment is that the multiplier of public
investment declined sharply from about 2.5 to as low as 1 (Yoshino,
Kaji, and Kameda 1998). This shows that such public investment
only increases budget deficits; it cannot bring about a recovery of
the Japanese economy. The results of this misallocation are seen in
declining returns from public and private investment, as reported by
Yoshino and Nakahigashi (1999, 2000) in Table 2.

The marginal productivity of public capital was high during the highgrowth period (1955–1969) but declined from 1970 onward. It is
likely that the misallocation of public capital also contributed to a
lower rate of return from private capital, since public investments did
not remove the “infrastructure bottlenecks” that lower the rate of
return from private investment.

2.4 High Appreciation of the Yen in the Mid-1990s
Figure 6 shows fluctuations in the dollar–yen exchange rate during
1990–2014. Appreciation of the yen in the mid–1990s caused
Japanese manufacturing companies to relocate from Japan to other
Asian countries. Wage increases also pushed Japanese companies
abroad. As a result, domestic production started to diminish.
Figure 7 shows Japanese outward foreign direct investment to
other Asian economies including the PRC; Hong Kong, China;
India; and Indonesia from 1989 to 2004.

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3. The birth of Abenomics:
After serving as prime minister briefly from 2006 to 2007, Shinzō Abe
began a second term in December 2012. Soon after resuming office, he
launched an ambitious plan to bolster Japan’s stagnant economy. Abe
announced that he and his cabinet would "implement bold monetary policy,
flexible fiscal policy and a growth strategy that encourages private
investment, and with these three pillars, achieve results."

Abe’s program consists of three “arrows.” The first consists of

printing additional currency – between 60 trillion yen to 70 trillion
yen – to make Japanese exports more attractive and generate modest
inflation - roughly 2%. This dealt with cause 2.4.
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The second arrow entails new government spending programs to
stimulate demand and consumption—to stimulate short-term
growth, and to achieve a budget surplus over the long term. This
deals with cause 2.3.
The third component of Abenomics is more complex—a reform of
various regulations to make Japanese industries more competitive
and to encourage investment in and from the private sector. This
includes corporate governance reform, easing of restrictions on
hiring foreign staff in special economic zones, making it easier for
companies to fire ineffective workers, liberalizing the health sector
and implementing measures the help domestic and foreign
entrepreneurs. The proposed legislation also aimed to restructure the
utility and pharmaceutical industries and modernize the agricultural
sector. Most important, perhaps, was the Trans-Pacific Partnership
(TPP), which was described by economist Yoshizaki Tatsuhiko as
potentially the "linchpin of Abe's economic revitalization strategy,"
by making Japan more competitive through free trade.

4. Abenomics’ impacts on the economy:
Abenomics initially was a major success. The economy
marked a trough in November 2012 and turned upward, a
change that was reflected in major economic indicators.

Real GDP accelerated its growth from 0.8% in fiscal 2012 to 2.6%
in fiscal 2013. Similarly, nominal GDP rose from 0.1% to 2.6%.
The unemployment rate fell from 4.2% in October–December 2012
to 3.6% in January–March 2014, and the ratio of active job
openings to active applicants climbed from 0.82 to 1.05.
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Consumer prices excluding fresh foods increased year on year from
-0.1% in October–December 2012 to 1.3% in January–March 2014.
To summarize, the economy accelerated, employment conditions
improved, and the consumer price index turned positive.

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III.

THE STRENGTHS AND WEAKNESSES OF FISCAL POLICY

Fiscal policy is known as a tool for government to stabilize and develop
the economy specially when it turned into recession and crisis instead of
letting the market self-regulate with the invisible hand. However, fiscal policy
is not always good for the economy, even if it is used in wrong way then the
situation of the economy can become worse.
- Strengths:

+ Fiscal policy allows the government to flexible intervene in Japan's deflationary
economy by introducing stimulus packages to the Japanese economy. As a result,
Japanese economy witnessed many positive change which improve standard of
living of Japanese people.
+ Tools of fiscal policy include tax tools, spending tools, and financing tools for
budget deficits. Government spending policies are also very diverse, but can be
roughly divided into two main parts: recurrent expenditure (such as salaries for
civil servants, spending on education, health care, and faculty). learningtechnology, security-defense) and development investment (such as construction
of socio-economic infrastructure) which stimulus the economy and drive it into
the right way. Japanese government and President Shinzo Abe had used
appropriately and effectively the Abenomics. The economy of Japan accelerated,
employment conditions improved, and the consumer price index turned positive.
- Weakness:
+ The government implements an easing fiscal policy by increasing government spending.
But in order to finance those expenses, the state issued bonds. According to Robert Barro –
an famous economist, he affirms: people, with rational expectations,
will understand that today when a state borrows, the state will increase taxes in order to
pay off debt, so it will reduce consumption and increase savings. today for the future to
have money to pay taxes. Thus, although the state increases its consumption but reduces
personal consumption, the effectiveness of financial policy will not be as high as expected
by the state. And it was true for Japan, it is very hard to change the saving habit of
Japanese – which not really good for a deflationary economy.

+ In some country, fiscal policy may take a lot of time to be approved.
Governments that want to make investments (government expenditures) often have
to seek approval from parliament and it may be rejected. However, Japan did not
have this situation, instead, Abenomics was approved and done effectively
+ The government wants to implement looser fiscal policy by increasing
government spending. Assuming it is passed by the National Assembly, it will take
time to wait for the National Assembly to consider and discuss. After that, in order

to deploy, activities such as project planning, survey and design must be carried out
to implement investment. These also take a lot of time. Therefore, there is a lag for
lax fiscal policy to take effect.

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REFERENCES
1. Wikipedia Contributors (2019). Fiscal policy. [online] Wikipedia.
Available at: />2. Market Business News. (n.d.). What is fiscal policy? Definition and meaning.
[online] Available at: [Accessed 17 Sep. 2020].
3. Investopedia. (2019). 3 Economic Challenges Japan Faces in 2019.
[online] Available at:
/>4.

oecdobserver.org. (n.d.). Japan’s economic challenges - OECD Observer. [online]

Available at:
/>es.html [Accessed 17 Sep. 2020].
5.

nippon.com. (2018). Abenomics: An Economic Recovery, but Growth Strategies Yield

Few Results. [online] Available at: [Accessed 17 Sep. 2020].
6.
Investopedia. (2019b). Abenomics. [online] Available
at: />
7. Yoshino, N. and Taghizadeh-Hesary, F. (2015). ADBI Working Paper Series

Japan’s Lost Decade: Lessons for Other Economies Asian Development Bank
Institute. [online] Available at:
/>8.
Investopedia. (2019). Abenomics. [online] Available
at: />9.
Những người đóng góp vào các dự án Wikimedia (2006). Chính sách tài khóa.
[online] Wikipedia.org. Available at: />%C3%A1ch_t%C3%A0i_kh%C3%B3a#:~:text=Ch%C3%ADnh%20s%C3%A1ch %20t
%C3

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