Date of Submission

Spring 2016

Academic Programs and Concentrations

Economics

Project Advisor 1

Randall Wray

Abstract/Artist's Statement

In this thesis in the first chapter I have analyzed why the Japanese economy crashed after 1988 and why it is still in a zero growth state and then explained how the conventional viewpoints regarding fiscal and monetary policy shape the lens through which we observe economic crises. In the case of Japan because economists believed that the crisis itself was caused by expansionary monetary policy after the Plaza Accord’s, we often attempt to find Fiscal and monetary policy solutions to stimulate Japan’s economy. In This thesis I have discussed the structural deficiencies in the Japanese economy which caused a property boom to result in a two decades long recession for Japan. The deficiencies in the domestic sector and generally weak domestic firms lead to an imbalance in the Japanese economy, which was further compounded when the real estate bubble burst. The expansionary monetary policy only exposed this inherent flaw. Then I analyzed policy recommendations and attempts by the Japanese Government to stimulate the economy through Fiscal and monetary policy after 2011 and their ineffectiveness. Fiscal Policy, which was effective initially as a tool to increase inflation, was only a short term solution as inflation decreased once again. This was partly due the increase in consumption tax which the Abe Government introduced. In the last part of the Paper I have analyzed ten different structural policies which if implemented together will generate long term steady state economic growth. The most important among these are an increase in investment in Information Technology and streamlining bureaucracy to allow foreign firms to operate in Japan more easily. These coupled with comprehensive corporate tax reform will allow Japan to return to steady state growth in the long run. There is no effective short term solution to Japan’s economic troubles, only targeted longSrun Structural adjustments will allow Japan to return to a steady state growth rate in the long run.

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