"A Theoretic Approach to Fiscal Reconstruction"(in Japanese)

Although most people agree with the importance of fiscal reconstruction, it is really difficult to agree with the concrete process of how to reconstruct the fiscal system. The present paper intends to investigate theoretically the negotiation process between interest groups and the fiscal authority in terms of dynamic optimization. The first half of the paper considers how budget procedures and budget institutions do influence budget outcomes. In particular we critically review theoretical contributions in the topics of sustainability problems, balanced budget policy, the ceiling constraint, and the transparency of the budget. The second half of the paper investigates dynamic properties of fiscal reconstruction by the infinite duration dynamic game among various interest groups with the framework of voluntary acceptance of tax burden. By comparing the first best solution, the open-loop solution under enforceable commitments, and the closed-loop solution without commitment, we explore the normative role of consumption taxes to internalize the free riding problem. We also derive explicitly the adjustment speeds of fiscal reconstruction under alternative solutions and examine the impact of consumption taxes on the adjustment speed.