Government Deficits, Political Inefficiency, and Fiscal
Reconstruction in Japan

Takero Doi

Toshihiro Ihori

and

Hiroki Kondo

We investigate the behavior of government deficits and fiscal reconstruction movement in Japan both theoretically and empirically. We first develop a dynamic framework of fiscal reconstruction process using the dynamic game theory among various interest groups. The distribution of a tax increase, that is, contribution of taxes to reducing public debt and raising privileges, depends on the political efficiency of lobbying activities. We also investigate empirically the relationship between the political inefficiency and the outcome of fiscal reconstruction process in the Japanese (national) general account.