Spending Without Taxation

Spending Without Taxationdemonstrates how the Fiscal Investment Loan Program (FILP) enabled the Japanese government to run a distinctive neo-classical fiscal policy based on low budget spending from the end of the 1940s through 1970. This policy ran counter to the postwar trend in other industrial democracies, where governments increased spending and taxation and in many cases employed fiscal stimulus. Gene Park's work reveals that while the government's commitment to budget restraint initially delivered economic benefits, it came at a high long-term cost: heavy state intervention in finance, a deferred fiscal burden, and the political challenge of reforming FILP. Comparatively, the Japanese case illustrates a larger point about the politics of public spending. While most comparative studies focus on budget spending, taxation, and budget deficits, the Japan experience demonstrates that governments can finance their activities not only through taxes, but through the allocation of credit and financial mechanisms. Ignoring the role of policy finance comes at the risk of underestimating or mischaracterizing the size and scope of the state, a point often overlooked by studies focused on explaining fiscal outcomes.