Economic Analysis Series No.183
THE ECONOMIC ANALYSIS

March, 2010
"Dynamic applied general equilibrium analysis for fiscal reconstruction based on a multi-sector overlapping generations model"
Shin KIMURA
Kyoji HASHIMOTO
"The Lost Decade and Employment Adjustment Behavior of Japan's Firms
-Changes in Mechanism for disciplining firms-"
Tomohiko NODA
Daisuke HIRANO
"Does the Difference Between "Corporate interest" and "Personal interest" in Corporate Crime Influence Sentencing?
-Econometric Analysis of Sentencing Factors in the Corporate Tax Evasion-"
Ken SHIRAISHI
Sayuri SHIRAISHI
Atsushi YAMASHITA
Takaaki MURAKAMI
"Analysis of the Soft Budget Constraint Problem in the Local Allocation Tax: Determinants of "modification coefficients" in Ordinary Expenditure"
Takeshi MIYAZAKI
"What Have We Learned from a Survey of Japanese Professional Forecasters?
Taking Stock of Four Years of ESP Forecast Experience"
Takao KOMINE
Kanemi BAN
Masaaki KAWAGOE
Hiroshi YOSHIDA

The full text is written in Japanese.

(Abstract)

"Dynamic applied general equilibrium analysis for fiscal reconstruction based on a multi-sector overlapping generations model"

In this paper we use a multi-sector overlapping generations life-cycle general equilibrium model to conduct a simulation analysis with regard to fiscal reconstruction in Japan. Most life-cycle general equilibrium analyses in Japan have a single manufacturing sector, making it impossible to analyze to differences between the targets of expenditure cuts. A feature of this paper is that it makes this possible by extending this to multiple sectors.

A temporary shock seen in the results of the simulation in this paper is that an increase in consumption taxes causes a rise in GDP. This rise in GDP, however, is caused by an increase in the consumption of fixed capital, and national income declines. As regards differences in the methods of reducing expenditure, cuts in education spending and other government spending cause a greater reduction in GDP than reductions in public investment. This is because the reduction of public investment causes capital formation to decline and thus has a long-term negative impact on production activity, whereas the reduction of education spending and other such government spending has a negative impact directly on production activity at the time of the reduction.

In the medium term, cases in which consumption taxes are increased make it possible to achieve high GDP, though in the long term GDP increases in cases in which public investment and education spending are reduced. Our analysis also shows that cases of reductions in other types of government spending are accompanied by lower GDP than in any of the other cases.

"The Lost Decade and Employment Adjustment Behavior of Japan's Firms
-Changes in Mechanism for disciplining firms-"

The purpose of this paper is to empirically analyze the factors supporting the employment maintenance policy of Japanese firms and bringing about the change in the policy in the period of "The Lost Decade," from the view point of corporate governance taking into consideration the attribution of managers. We conduct analyses for the period divided into two periods of "employment maintenance" and "active in downsizing" at the turning point of 1997. The results reveal that main banks, financial institutions, cross-shareholdings by business corporations and enterprise unions had the restraining effect on downsizing and encouraged employment maintenance in firms before 1996, on the contrary after 1997, these effects became weaker and foreign shareholders increased their impacts on downsizing instead. This implies that the main player to monitor and discipline poor performing firms has shifted from main banks to foreign investors.

The results of our analyses in consideration of the attribution of managers show the impacts of each stakeholder on the employment policy in promoted-manager firms, however the effects are not observed in owner firms. Thus, it is revealed that the effects of each stakeholder differ depending on the attribution of managers, and stakeholders affect managers' decision making on employment maintenance or downsizing, however they have little effect on their decision making in owner firms.

"Does the Difference Between "Corporate interest" and "Personal interest" in Corporate Crime Influence Sentencing?
-Econometric Analysis of Sentencing Factors in the Corporate Tax Evasion-"

Based on the fact that corporate crime has two types of motives-"corporate interest"and "personal interest"-court decisions often suggest that the type of motive a defendant had may affect sentencing. This paper verifies such an effect on corporate tax evasion cases including in "corporate interest"and "personal interest"cases by extracting factors from written judgments and utilizing econometric analysis. We found (1) in determining the appropriate punishment, judges integrate imprisonment term and suspension term, (2) "corporate interest" has a negative effect on sentencing, (3) the volume of tax evasion has a positive effect on sentencing and (4) the ratio of tax evasion has a positive effect on sentencing. We think that the result is reasonable from a social standpoint and preceding studies but is not justifiable from a standpoint of crime deterrent. Therefore, we argue that we should rethink criminal liability and crime deterrents in sentencing theory in cases of corporate crime.

Moreover, we expect econometric analysis to play a significant role in sentencing, which will contribute enhanced transparency in criminal justice procedures and in sentencing, especially in the jury system introduced in 2009.

"Analysis of the Soft Budget Constraint Problem in the Local Allocation Tax: Determinants of "modification coefficients" in Ordinary Expenditure"

It is pointed out that the Local Allocation Tax (LAT), an intergovernmental fiscal transfer aimed at offsetting and balancing the disparity between expenditure and revenue in local governments, relates to efforts to increase tax revenue and mitigate expenditure. According to Ikegami (1998) and (2003) and Akai et al. (2003), "modification coefficient" used to adjust for the impact of physical, institutional and regional characteristics on provision costs of local government services is altered based on requests from local governments in a manner that permit their wasteful spending and the soft budget constraint problem arises in determination of modification coefficient.

This work investigates whether the soft budget constraint problem arises under changes in modification coefficient and local governments engaging in inefficient provision of public services are provided additional resources through change of coefficient. Two main results are obtained. First, in police expenses, elementary and junior high school expenses and public hygiene and sanitation expenses, local governments that incur high costs in public service provision could improve the estimates of LAT by changing modification coefficient. Second, in elementary and junior high school and public and sanitation expenses, the disparities of coefficients among local governments became larger while inefficient local governments could increase their modification coefficients.

"What Have We Learned from a Survey of Japanese Professional Forecasters?
Taking Stock of Four Years of ESP Forecast Experience"

This paper aims to take stock of four years of ESP forecast experience since its launch in 2004. The consensus performs well, compared to individual forecasters, which is confirmed probably for the first time in Japan. It satisfies the average form of rational expectations hypothesis defined in Pesaran and Weale (2006) at least in short forecast horizon. Remaining promising research agenda includes real-time data analysis of updating forecasters, subjective distribution, non-specialists' forecasts, and changes in forecasts due to the Lehman shock.

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