Macroeconomic Dimensions of Public Finance: Essays in Honour of Vito Tanzi

By Mario I. Blejer; Teresa Ter-Minassian | Go to book overview

4

THE BUDGET-MINIMIZING BUREAUCRAT

The Japanese case of the invisible hand

Hirofumi Shibata and Aiko Shibata

I would take my stand with the authors of the Federalist…who argue that the good may be most dependably secured by arranging ‘things so that the private interest of every individual may be a sentinel over the public rights. ’

(Aaron Wildavsky)


INTRODUCTION

It is argued that certain private interests of bureaucrats drive them to maximize the budgets of their bureaus and thus contribute, along with other factors, to over-expansion of the government sector. 1 The absence in the budget-making process of agents whose private interests are to minimize a nation’s budget may be blamed; if such agents were present, they might exert restraining influences on the trend of ever-expanding government budgets.

The Japanese budgeting system presents an interesting model in this respect. Japan is known for its powerful bureaucrats and yet has successfully reduced its budget deficits recently. After experiencing heavy deficit financing in the aftermath of the oil crises, in fiscal 1990 Japan succeeded in balancing her budget without issuing deficit-covering bonds for the first time in 15 years. 2

This chapter investigates budget-restraining forces involved in the Japanese budget-making process. It hypothesizes that under the Japanese system of budget making the private interests of the budgeting bureaucrats generate significant countervailing pressure on the expanding trend of government budgets. We ask questions such as: are there any bureaucrats whose private interests motivate them to work toward restraining the size of the nation’s budget? If so, how do Japanese institutions succeed in harnessing the private interests of these bureaucrats?

We first review, as a way of setting the stage for the discussions that follow, the standard behavioral hypotheses of the budget-maximizing bureaucrat and

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