Public finance is a realm where politics meet economics. Through systems of public finance governments attempt to balance the competing imperatives of democracy and the market economy. As this book shows, governments can do so not only through budgetary means but also by using financial mechanisms to allocate credit and investment, that is, policy finance. After the end of World War II, the Japanese government constructed and deployed a massive system of policy finance, FILP, to supplement its budget. A large FILP has been the flip side of Japan’s relatively small budget, and this combination has had profound consequences for Japan’s political economy. This concluding chapter draws out the significance of this study’s findings for the study of Japanese politics and politics more generally.
This study shows that FILP was a critical component of the postwar political settlement that tied together the government’s fiscal policy, industrialization strategy, and the ruling party’s political strategy. By making it possible for the government to keep formal budget spending low and public investment high, the LDP was able to square the circle. The ruling party used FILP to suppress budget spending, which allowed it to deliver popular tax cuts without sacrificing budget balance or spending. This fiscal policy also formed a key component of the government’s larger economic growth strategy. Low taxes boosted private savings and investment, and, by keeping budget spending low, the government, helped by rapid economic growth,