Balancing Fiscal Policy, Industrialization,
and Distributive Politics, 1953–1970
When Japan regained independence in 1952, the government faced an outpouring of new political pressure. It could easily have chosen to abandon the policy of budget restraint imposed by the United States, given the government’s other objectives and the need for public funds to achieve them. Yet the government not only reaffirmed support for balanced budgets, it also embraced a policy of lowering taxes, limiting budget funds even further as part of its economic growth strategy. This chapter explains why the government chose to pursue a fiscal strategy based on low budget spending, low taxes, and balanced budgets. It then elaborates FILP’s role in making this strategy consistent with the ruling coalition’s other primary objectives—promoting industrialization and staying in power. Specifically, it analyzes three institutional effects: how FILP aligned interests in the conservative camp; how MOF used FILP as a power resource; and how FILP channeled interests allowing the government to strike compromises that balanced competing claims. A separate section explains how FILP’s development over time, much of which was inadvertent, dynamically shaped the context in which the government made its choices. Finally, the chapter concludes with consideration of a counterfactual: What would have happened had FILP not existed?
The policy of budget restraint came under enormous strain with the return of sovereignty. The departure of the occupying military authorities, which had imposed and enforced it, removed an external constraint on the Japa-