Some commentators have proposed that Japan should raise public spending to boost inflation, which would allow the Bank of Japan to raise interest rates. But given that the economy is operating at full capacity, the required increase in the budget deficit may be very large. And raising the budget deficit in good times could make the government more reluctant to use fiscal stimulus when it is truly needed. The upshot is that the government will probably continue to tighten rather than loosen fiscal policy.
Subscriber content
Read this in full, free
Start a free trial and use one of your 10 free starter credits to unlock this piece.