Dynamic applied general equilibrium analysis for fiscal reconstruction based on a multi-sector overlapping generations model (in Japanese)

In this paper we use a multi-sector overlapping generations life-cycle general equilibrium model to conduct a simulation analysis with regard to fiscal reconstruction in Japan. Most life-cycle general equilibrium analyses in Japan have a single manufacturing sector, making it impossible to analyze to differences between the targets of expenditure cuts. A feature of this paper is that it makes this possible by extending this to multiple sectors. A temporary shock seen in the results of the simulation in this paper is that an increase in consumption taxes causes a rise in GDP. This rise in GDP, however, is caused by an increase in the consumption of fixed capital, and national income declines. As regards differences in the methods of reducing expenditure, cuts in education spending and other government spending cause a greater reduction in GDP than reductions in public investment. This is because the reduction of public investment causes capital formation to decline and thus has a long-term negative impact on production activity, whereas the reduction of education spending and other such government spending has a negative impact directly on production activity at the time of the reduction. In the medium term, cases in which consumption taxes are increased make it possible to achieve high GDP, though in the long term GDP increases in cases in which public investment and education spending are reduced. Our analysis also shows that cases of reductions in other types of government spending are accompanied by lower GDP than in any of the other cases.