The Danger of a Public Finance and Banking Spiral
Professor, Graduate School of Economics, Kyoto University
In April 1998 the Hashimoto Cabinet decided economic measures worth 16 trillion yen and went to the polls in an Upper House election, but lost. The Obuchi Cabinet which emerged from the election pledged to implement economic measures worth 10 trillion yen and tax cuts of 9 trillion yen, and from the outset it pursued positive finance styling itself as the "Economy-reviving Cabinet." At the end of the year, economic measures worth 27 trillion yen were implemented, a positive budget was drawn up including the issue of 30 trillion yen of national bonds in the 1999 budget, and policies were adopted for alleviating negative growth, including hammering out economic measures worth 10 trillion yen in the supplementary budget. However, the proportion of total revenue supplied by national bonds after the supplementary budget exceeded 38%, giving rise to the situation where procurement by issue of national bonds was greater than tax revenue.
Outstanding government debt at the end of 2000 stands at 650 trillion yen
The economy showed slight signs of recovery in 1999, bringing the prospect of escape from negative growth.