Why Did Japan Have Economic Growth without Income Inequality in the 1960s? -The Conflict between Fiscal discipline and Fiscal Policy

Ryotaro Takahashi, Tokai University

This study clarifies the process of forming a policy system that reduced income inequality during the period of rapid economic growth in Japan from 1960 to 1973, focusing on the policy-making process of the government and the Ministry of Finance. In comparative welfare state research, the Japanese welfare state has been termed an “equal” small government. Previous research has investigated the employment policy as a functional equivalent of social security as a reason for this. However, Japan’s Gini coefficient was on the rise in the 1950s, and inequality began to narrow in the 1960s. This study focuses on the “Income-Doubling Plan” and its policies adopted during the 1960s, when this disparity began to narrow. The Plan , which was approved by the Cabinet in December 1960, aimed to bridge the gap between (1) cities and regions, and (2) large and small businesses. Conversely, the Ministry of Finance had adopted a balanced fiscal rule that did not issue public bonds due to the ceiling of payments balance. Therefore, expansive fiscal policies could conflict with fiscal discipline. Thus, income tax cuts and public works were prioritized, and social security policies were subordinated. Using the Ministry of Finance’s records and the draft of the “Income-Doubling Plan” to analyze the above policy-making process, this study will identify the origins of Japan’s “equal” small government.

No extended abstract or paper available

 Presented in Session 88. From the Top: Elites and Fiscal Policy Making