Introduction

Japan's fiscal program has undergone significant change in the late 1990s and the first years of the new century. The fiscal program consists of the general budget for the central and local governments based on the familiar revenue-spending framework and the FILP based on a flow-of-funds framework. The general budget stipulates government revenues from various taxes, fees, and bonds and how the revenues are allocated to various components of government spending. The FILP is referred to as Japan's “second” budget, because of its size and importance. Both the general budget and the FILP budget are drafted by the government and approved by the Diet. The FILP funds came primarily from postal savings deposits, postal life insurance, and national pension contributions. The FILP budget allocated funds to a system of government banks, enterprises, corporations, and local governments, which were referred to collectively as FILP agencies. Starting in 2001, FILP funding sources changed and a major redesign of FILP and the PSS occurred.

There were many catalysts for the change in Japan's fiscal program, but one of the more important was the growing recognition that Japan's conventional fiscal program was the source of economic inefficiencies and prevented Japan from adjusting to the new reality of the globalized international economy, which put competitive and efficiency pressures on most industrial nations. The general budget often was used as an instrument of stabilization policy in the context of Keynesian demand management.