Spending without Taxation: FILP and the Politics of Public Finance in Japan

By Gene Park | Go to book overview

SIX
Pushing the Limits of the FILP Compromise, 1970–1990

The compromise that FILP helped strike within the ruling camp rested on a delicate balance. To keep budget expenditures low, the government deployed FILP as an alternative to the budget to finance its political priorities. To keep this formula working over the long term, the government needed to ensure that making FILP serve its budget and political priorities did not undermine the financial health of the system. Instead, in response to a number of political and economic changes beginning in the 1970s, the government increasingly exploited the system to defer difficult fiscal choices and finance the ruling party’s pork-barrel political strategy. While this helped the ruling party paper over widening differences between its pork-barrel wing and fiscal hawks in the 1980s, it did so at the expense of FILP. The changes that unfolded during this time period in turn set the stage for reform during the 1990s, a subject treated separately in the next chapter. First, this chapter explains the rise of new economic and political pressure on the government. The chapter then discusses how this pressure resulted in changes in the management of FILP. Finally, the chapter elaborates why the Japanese government did not pursue options that would have helped it avoid undermining the financial health of the FILP system.


Factors That Altered the Management of FILP

Beginning in the 1970s, the government’s use of FILP changed in two subtle yet highly consequential ways. First, the government used FILP increasingly to pay for pork-barrel projects. Second, the government began

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