Kαgawa Universify EconomI( Review

V 01 72， N 0 2， September 1999， 367-388

Displacement Effect on Government

Expenditure and Government Revenue

in }apan， 1957-1991

Abstract

Takeyuki Hirai Masuo N omura

Since the seminal work by Peacock and Wiseman (1961)， many

researchers have examined the question of the existence of the displace-

ment effects on government expenditures. Recently， in these studies， the

displacement effect is interpreted econometrically as the existence of

structural change.. However， very few studies have examined the displace-

ment effects on govemment revenues. In this paper， we examine the

displacement effects on government revenues and expenditures for the

period 1957-1991 in Japan It is shown that the analyses of the displace-

ment effects on revenues are also meaningful..

1 . Introduction

Since the seminal work by Peacock and Wiseman (1961)， many

researchers have examined the question of the existence of displacement

effects on govemment expenditures generated as a consequence of the

W orld Wars or the Great Depression O'Hagan (1980) examined the dis-

placement effect caused by the subsequent recession after the first oil crisis

over the period 1953 to 1976， and recently N omura (1991) has examined the

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displacement effects caused by the subsequent recession after the first oil

crisis and the subsequent recession after the second oil crisis

Diamond (1977)， Watt (1978) and Nomura (1991) discussed an inter-

pretation of the displacement effect as a structural change" The displace-

ment effect on government expenditure is considered as a consequence of

change of a number of exogenous factors， that is， tastes， preference， pro-

duction technology， institutional arrangements and so on (assumed con-

stant for the purpose of empirical testing)" Thus， the displacement effect

is a change of structure which is a set of specified parameters by the model

of variable GDP (or GNP) related to government expenditure (See

Diamond (1977)) As mentioned in Diamond (1977)，羽Tatt(1978) and

N omura (1991)， the assumption of equal variances of error terms may be

unrealistic“

Many authors have examined the displacement effects on government

expenditures Following Peacock and Wiseman (1979)， the notion of toler-

able levels of taxation argued that government expenditures reflect both

supply influences and demand influencesれ Thesupply influences mean the

raising of government revenues and the demand influences mean the

demand by citizens for government services“ They discussed that

econometric tests used in the literature of the displacement effect have

tended to concentrate on the demand side of the problem， to the relative

neglect of supply" Very few studies have examined the displacement

effects on government revenues"

A few types of studies have examined the relationship between the

government expenditures and government revenues" In particular， many

researchers have examined the intertemporallinkages between government

expenditures and revenues， Following Holtz-Eskin， Newey and Rosen

(1989)， as von Furstenberg， Green and .Jeong (1986) observe， three hypoth-

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Displacement Effect on Government 677 Expenditure and Govemment Revenue in Japan， 1957-1991 369-

eses have been advanced:

(a) Revenues change concurrently with expenditures.. This situation resem-

bles the textbook case in public finance in which voters simultaneously

select expenditures and taxes using the standard calculus for weighing

marginal benefits and costs

(b) Taxes change before spending.. To see how this situation might

emerge， consider a government controlled by individuals who want to

expand its size beyond that desired by the citizenry In the presence of

statutory or constitutional rules prohibiting deficits， public sector man-

agers must wait for revenues to increase， and then increase expendi-

tures ..

(c) Spending changes before taxes. In this situation， taxes gradually

adjust to expenditures

In the paper of von Furstenberg， Green and J eong (1986) (hereafter

FGJ)， they used vector autoregressions (V ARs) to analyze expenditure and

revenue data of the federal government for the US Their finding was that

spending did not respond to taxes， but there was support for the reverse

situation (c) that spending helps to predict taxes.. Holtz-Eskin， Newey

and Rosen (1989) (hereafter HNR) used V AR techniques to data from

individual local government to study the revenues-expenditures nexus..

They have found that past revenues help to predict current expenditures，

but past expenditures do not alter the future path of revenues.. From the

studies of FGJ and HNR， there are intertemporallinkages between expend-

itures and revenues.. The existence of such linkages suggests that hypothe-

sis (a)-revenues change only concurrently with expenditures-is inconect

This finding casts doubt upon the interpretation of standard regressions

that examine only contemporaneous relationships among fiscal variables“

See also Ram (1988) and Joulfaian and Mookerjee (1990)

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From the above discussion， the analyses of the displacement effects on

the revenues may be different from those on the expenditures， The pur-

pose of this paper is to examine the displacement effects on the revenues

and expenditures for the period 1957-1991 in J apan Our definition of

government expenditures include expenditures of general government (cen-

tral government， local government and social security funds)

II. The Empirical Model and Statistical Testing

II. A. An Empirical Model

Gupta (1967) devise statistical tests for the displacement effect fitted a

double logarithmic function which is linear in logarithms (log-linear) for

different sub-periods， before and after major social upheavals， Gupta

(1967)， Nagarajan (1979， 1983) and Nomura (1991) used a log-linear func-

tional form， The government expenditure equation is defined by the

equation，

log e = al + b1log z 十 UI， (1)

where e and z denote per capita government expenditure and per capita

GDP (or GNP) at constant prices respectively" In this paper， log stands

for the natural logarithm of the variable，αI denotes the regression inter-

cept， the slope regression coefficient， bl， is the GDP (or GNP) elasticity of

per capita government expenditure with respect to per capita GDP (or

GNP)， and UI is the usual stochastic term

We modify the government revenue equation used by Thorn (1967)

The government revenue equation used in this paper is defined by the

equation，

log r = ~ + bzlog z 十 Zら (2)

where r and z denote per capita government revenue and per capita GDP

(or GNP) at constant prices respectively" In this equation， ~ denotes the

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Displacement Effect on Government 679 Expenditure and Government Revenue in Japan， 1957-1991 -371-

regression intercept， the slope regression coefficient， b2， is the GDP (or

GNP) elasticity of per capita government revenue with respect to per

capita GDP (or GNP)， and zら isthe usual stochastic term“ Following

Abizadeh and Y ousefi (1988)， the equation (2) can be re-expressed by the

following equation :

log(R/ Z) = じら + (b2ーl)logz + 偽， (2')

where R and Z denote government revenue and GDP (or GNP) at constant

prices respectively. N ote that R / Z r/ z By omitting two dummy

variables of the equation used by Thorn (1967)， we can obtain the equation

(2')

II. B. Statistical Testing of Structural Change

Let us consider a linear regression model :

Y1 ニ X1s1+ U1， U1 ~ N(O，σ.121N，)，

Y2 X2s2十 Zら，zら~ N(O，σ'z21N，)，

(3)

(4)

where Y1 (Y2) is an N1 x 1 (λらx1) vector of observations on a dependent

variable， X1 (お)is an N1 xk (凡xk) matrix of non-stochastic observa幽

tions on independent variables，β1 (β2) is a k x 1 (k x 1) vector of regres-

sion coefficients and U1 (偽)is an N1 x 1 (N2 X 1) vector of disturbance

terms. As regards disturbance terms， we assume that U1 and zゐaredis-

tributed as N(O，σ121 N，) and N(O，。♂1N')， and U1 and zゐ aremutually in-

dependent. Let N = N1 + 1見

Following Nomura (1991)， we introduce the two-stage test of the

equality of the full set of regression coefficients after a pre-test for homos-

cedasticity in two linear regressions.

We can use the Chow test to test null hypothesis，品 :β1=β2，against

the a!ternative， 日 : β1司とβ2. If σ12= 0'22 under the null， the Chow test

statistic is distributed as an F distribution with degrees of freedom k and

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We can S22 be that of σ♂ Let s/ be usual estimate ofσ12 and N-2k..

Sl 2/ s/ to test null hypothesis，品。 :σ12=σ乙use the test statistic凡=

The test statistic 凡 isdistributed as against the alternative， H01:σ12ヰσ22

Thus， there an F distribution with degrees of freedom N1 - k and N2 - k

Diamond

(1977) argued that the assumption of equal error variances can be unrealis-

tic in some situations

are N1 observations before the displacement and N2 afterwards

The Chow test is not robust in the presence of

Watt (1979) proposed a Wald test which is valid for heteroscedasticity，

cases of both equal and unequal error variances， and Honda and Ohtani

(1986) proposed a modified Wald test to control the size of the test for small

Since the data of government expenditures are small samples， samples"

htti--lili--ji--iig Nomura (1991) suggested use of the modified Wald test in examining the

Following Nomura (1991)， we set the critical values displacement effect

of the modified Wald test with reference to a central chi-square distribution

with k degrees of freedom under the nulL

Following Nomura (1991)， testing procedure for the equality of the full

set of regression coefficients in two regressions is therefore as follows，

The Chow test statistic is used to test Ho if 品。 (σ12=σゾ)is not rejected in

the pre-test and the modified Wald test statistic is used to test品 if品。 is

The modified Wald test statistic will be used in the studies of the rejected

displacement effect for heteroscedasticity， since the Chow test is not robust

to heteroscedasticity even if it is mild and the sample sizes are small in our

examination of the displacement effect

II. C. Statistical Estimation of the Structural Chang-e-Point

In studies of the structural change， many researchers have examined

However， the

In exact position of the change-point may not be clearly indicated a priori

the structural change at a given structural change-point

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Displacement Effect on Government 681 Expenditure and Government R巴venuein Japan， 1957-1991 373-

this case， the position of the structural change-point should be estimated

For this purpose， we use the estimation procedure proposed by Nomura

(1991)

II. D. Data Sources and Definition of Variables for Japan

Our definition of government expenditures include expenditures of

general government (central government， local government and social

security funds). Since government expenditures are sensitive to seasonal

fluctuations， many researchers have used annual data in examining the

government expenditures.. We wi11 use calendar yearly data ..

Transfer payment is defined as follows :

transfer payment of general government

=social security benefits + social assistance grants + cunent trans-

fers to private non-profit institutions serving households + unfund-

ed employee welfare benefit

We wi11 consider three types of government expenditures and three

types of government revenues“ These are defined as fol1ows :

E1 = government final consumption expenditure + gross domestic

fixed capital formation of general government，

ι= subsidies + transfer payment of general government，

Eら=El十ι，

R1ニ indirecttaxes and direct taxes of general government + compul-

sory fees， fines and penalties of general government，

Rz=social security contributions of general government + unfunded

employee welfare contributions，

Rs=Rl+Rz.

Similar to Beck (1985)， total government expenditure ιis divided into

government purchases E1 and government transfer expenditure ιThe

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former EJ does， and the latter Ez does not， involve the direct use of

resources by govemment. Next， total govemment revenue R3 is divided

into govemment tax revenue RJ and social security revenue (revenue of

social security funds) Rz The former RJ is collected by govemment

compulsorily， and the latter Rz is also collected similarly under the social

security program. Therefore， we should note that public debt is not

included in the total government revenue R3 Note also that interest

payment of public debt is not included in the total govemment expenditure

f斗 Infact， it is difficult to divide the total expenditure and the total

revenue respectively in order that the expenditure may strictly correspond

to the revenue according to purpose.. Though the transfer expenditure is

financed by a part of the tax revenue as well as by the social security

revenue under the above division， we consider that there may be rough

correspondences between the govemment purchases EJ and the tax revenue

RJ， and between the transfer“expenditure ιand the social security revenue

Rz

The data for govemment final consumption expenditure at constant

price (base year 1985)， gross domestic fixed capital formation of general

government at constant price (base year 1985)， transfer expenditure ι，

govemment tax revenue RJ， social security revenue Rz and deflators for

private final consumption expenditure (base year 1985) are drown from

Annual Report on N ational Accounts and data for population is drown from

Monthly Report on Current Population Estimates N ote that the transfer

expenditure includes transfer payment and subsidies for general govem-

ment. We deflate the transfer expenditureι， government tax revenue RJ，

social security revenue Rz by using deflators for private final consumption

expenditure (See Beck (1979)) Thus， we consider real dataゎ Alldata

are qenoted by per capita term. All series are obtained from the Nikkei

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NEEDS Database..

III. Tests of the Displacement Effects

III. A. Location of Structural Changes

In this section， we examine the displacement effects on government

expenditure and govemment revenue. As mentioned in previous section，

the displacement effect is intepreted econometrically as the existence of

structural change.. So， first of all， we must estimate the position of struc-

tural change because the exact position of the change-point is not clearly

indicated a priori For this purpose， following Nomura (1991)， we succes-

sively compute the modified Wald test statistic for all possible time-points

and regard the time-point which maximizes a value of the test statistic as

a candidate for the location of the change-point. However， it is possible

that multiple structural changes may have occurred during the period 1957-

1991 We， therefore， divide the period 1957-1991 into sub-periods: the

period 1957-1979 and the period 1974-199L

In Table 1， TMW denotes the time-point which presents the maximum

value of the modified Wald statistic during the period cosidered in our

estimation procedure as stated above.. Furthermore， in the table， the

modified Wald， the Chow and the凡 teststatistics are shown for each time-

point TM W respectively. For the expenditures EJ，ι，ι， and the revenues

Rb Rz， R3' the candidates for the location of the change-point are detected

at TM W during the period considered respectively

III. B. Existence of Structural Changes for Government Expenditure

We examine the displacement effects on govemment expenditure fol-

lowing our estimation procedure in section II“ From the results for the

govemment purchases EJ in Table 1， we detect a structural change-point

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Table 1 Search of the Strucutral Change Time-Points of Government Exprenditur巴 and

Revenue Equations for the Periods 1957-1991， 1957-1979 and 1974-1991

Data Period TMW Chow Mod Wald Fo

E1 1957-1991 1959 1.193 205..811 a O. OOOb (2，31) (1，30)

1957-1979 1959 0..648 108 161 a O. OOOb (2，19) (1，18)

1974-1991 1978 47.684a 58..460a 1.132 (2，14) (3，11)

E2 1957-1991 1973 91.251a 281 724a 0.246a

(2，31) (15，16)

1957-1979 1973 151. 646a 198. 582a 0.489 (2，19) (15，4)

1974-1991 1980 24.195a 39.. 053a 3..973 (2，l4) (5，9)

E3 1957 -1991 1971 26.367α 175..804a 0.087a

(2，31) (13，18)

1957-1979 1974 62.984a 186. 863a 10.478 (2，19) (16，3)

1974-1991 1978 45.321a 47..036a 2.743 (2，14) (3，11)

R1 1957-1991 1975 21. 8川 α 113.271a 7.227α (2，31) (17，14)

1957-1979 1969 4. 092b 10..061 a 0.335 (2，19) (11，8)

1974-1991 1986 1.299 3.914 10.346 (2，14) (11，3)

R2 1957-1991 1974 94.903α 154..952a 3.476b

(2，31) (16，15)

1957-1979 1974 53. 676a 139 700a 4.361 (2，19) (16，3)

1974-1991 1981 3.630 6.. 648b 7市291b

(2，14) (6，8)

R3 1957-1991 1969 76.247a 145.. 297a 0.701 (2，31) (11，20)

1957-1979 1969 15. 097a 34..066α0.336 (2，19) (11，8)

1974-1991 1986 L025 2..982 6.313 (2，14) (11，3)

Notes: TMW denotes the time-point that the modified Wald test statistic has the maximum value for the period considered and Mod. Wald denotes the maximum value of the modified Wald test statistic over k <爪 <N -k. Chow denotes value of Chow test sta tistic

a denotes significance at the 1% leγel and b denotes significance at the 5% level The modified Wald test statistic are conducted by reference to a central chi-square distrib叫tionwith k = 2 degr四 sof freedom The results of Fo test are obtained by the two-sided tests. The degrees of freedom of F distributions are given in parentheses.

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1959 for the periods 1957-1991 and 1957-1979 In this case， the test statis-

tics凡 revealthe presence of heteroscedasticity and the results of the

modified Wald test statistics are significant at the 1% level This struc-

tural change might be caused by the recession of 1957-1958 During the

period 1957-1974， a transition from the postwar economy to the high

growth economy has occurred at the recession of 1957-1958 in J apan.. For

the period 1974-1991， a structural change for the government purchases is

detected in 1978 since the test statistic Fo reveals the presence of homos-

cedasticity and the result of the Chow test statistic is significant at the 1%

level“ This structural change might be caused by the recession which

occurred after the second oil crisis.

Similarly， from the results for the government transfer expenditure ι，

we detect a structural change-point 1973 for the periods 1957-1991 and

1957-1979.. In this case， considering that the transfer expenditure is closely

related to the social security program， the displacement effect may be

caused by both the reformation of social security program in 1973， which is

called “fukushi gannenぺandthe first oil crisis For the period 1974-1991，

a structural change for the transfer expenditure is detected in 1980.. This

structural change may be caused by the recession after the second oil crisis ..

For the total government expenditure 広， three structural changes are

detected in 1971， 1974 and 1978 for the periods 1957-1991， 1957-1979 and

1974-1991 respectively. These results may depend on various causes which

are also related to the structural changes of El and E2. We consider that

the displacement effect in 1974 was caused by both the first oil crisis and the

reformation of the social security program as stated above While the

structural change in 1971 might be caused by the recession of 1970， the

structural change in 1978 might be caused by the recession after the second

oil crisis..

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III. C. Existence of Structural Changes for Government Revenue

In We also examine the displacement effects on government revenue.

Table 1， from the results for the government tax revenue Rl' we detect a

This structural structural change-point 1969 for the period 1957-1979

For the period 1957-1991， change might be caused by the recession of 1970

We consider that this structural a structural change is detected in 1975

For the period change is caused by the recession after the first oil crisis..

1974-1991， however， we find that 1986 cannot be considered a point of

structural change for the tax revenue because the result of the Chow test is

not significant.

i

l

l

For the social security revenue R2' we detect a structural change-point

1974 for the periods 1957-1991 and 1957-1979 and a structural change-point

These structural changes are dated one year 1981 for the period 1974-1991.

later than the structural changes for the transfer expenditure ιfor each of

So， we consider that， as for the periods consid-the periods respectively

ered， the causes of these structural changes are same as those of the

structural changes for the transfer expenditure respectively since the social

security revenues are closely related to the transfer expenditures

Furthermore， for the total government revenue R3' a structural change-

QU

LU

T

point is detected in 1969 for the periods 1957-1991 and 1957-1979..

structural change might be related to that of the tax revenue R1 for the

For the period 1974-1991， however， we cannot regard period 1957-1979..

1986 as a point of structural change since the result of the Chow test is not

significant

III. D. Summury of Findings

We pointed that there are rough correspondences between the govern-

ment purchases E1 and the tax revenue Rl' and between the transfer

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Displacement Effect on Government 687 Expenditure and Government Revenue in Japan， 1957-1991 -37~少ー

expenditureιand the social security revenue Rz So， the findings of this

section are as follows :

(a) The structural change for the social security revenue is dated one year

later than that for the transfer expenditure during each of the periods

considered respectively.. The displacement effect on the former and the

displacement effect on the latter might have occurred at the same time

approximately since there is close relation between them

(b) The structural change-points for government expenditures are not

generally equal to those for government revenues. This means that the

analyses of the displacement effcts on revenues are different from those on

expenditures..

By the way， according to Peacock and Wiseman (1961)， people's ideas

about the tolerable burden of taxation can be separated from their notions

of the desirable level of public expenditure and there is likely to be a gap

between the two concepts. Therefore， major social disturbances， such as

World Wars， may create a displacement effect by shifting public expendi-

ture to new levels， and such a shift may occurred because new ideas of

tolerable tax levels emerge after the disturbance is over.. According to

Gupta (1967)， a shift in people's ideas about the tolerable burden of taxa-

tion is possibly of greater significance for a displacement effect of war and

a shift in their ideas about the desirable level of public expenditure could be

considered of greater significance for the displacement effect of the Great

Depression..

So， in this paper， the structural changes for government expenditures

and revenues are interpreted by adapting the above two concepts as follows.

First， we interpret the structural changes for the expenditures El' E;z， and

広 asthe shifts in people's ideas of the desirable level of government

purchases， transfer expenditure， and total government expenditure respec-

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380ー Kagawa University Economic Review 688

tively Next， we interpret the structural changes for the revenues Rl' R2'

and R3 as the shifts in people's ideas about the tolerable burden of tax

revenue， social security revenue， and total government revenue respective-

ly Peacock and Wiseman (1961， p.. xxiv) state that people's ideas about

the tolerable burden of taxation are tranalated into ideas of reasonable tax

rates.. Considering this statement in our model， we suggest that they can

be formulated by the regression coefficients of government revenue equa-

tions Since we have observed some possible structural changes for gov-

ernment expenditures and revenues， we wi1l now examine in some detail

the shifts in these concepts by the regression analyses.

IV. Results of the Regression Analyses

In Table 2， we show the results of regression analyses for the sub

periods of 1957-1979 and 1974-1991れ Theslope regression coefficient esti-

mates in the table have expected signs and are significantly different from

zero at the 1 % levelゎItis therefore interesting to examine the GDP

elasticities of government expenditures and revenues which are given by the

slope regression coefficient estimates of expenditure and revenue equations

respectively in Table 2

IV. A. Examination of the GDP Elasticities of the Government

Expenditures

We examine the elasticities of the government expenditures. From

the results in Table 2， the elasticity of government purchases E1 is relative-

ly small for the period after the structural change-point 1959 considering

the sub-period 1957-1979. This means that the desirable level of govem-

ment purchases appears to decrease as a result of the displacement effect

For the sub-period 1974-1991， the elasticity of govemment purchases is also

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689 aDnid spGla。c、ement Effect on Govemment

Expenditure and Govemment Revenue in Japan， 1957-1991 -381-

Table 2 Regression Analyses for the Sub-Periods of 1957-1979 and 1974-1991

Data Period Intercept Slope Adj R2 D..W

E， 1957-1959 -0..277 0..901 LOOO 2..978 (-4931 ) (212547a)

1960-1979 1..042 0.798 0..965 0..320 (2118b

) (22..970a)

1974-1978 -13..018 1.770 。..967 2 727 (-5 553b

) (10 946a)

1979-1991 5 093 0.527 0..957 L353 (10 740a) (16432a)

E2 1957-1973 -7..315 1.323 o 996 0.836 (-25. 273a) (634l2α)

1974-1979 -24..480 2.533 o 913 L585 (-4 876a) (7..326a)

1974-1980 -21 511 2 328 o 925 L343 (-5.507a) (8664α)

1981-1991 -1 459 。.960 0.958 2440 (-1 543 ) (15055a)

E3 1957-1974 0..191 0.881 0.990 0..576 (0 650 ) (4L581α)

1975-1979 -lL694 1..715 0.988 2..701 (-8.376a) (17853α)

1974-1978 -18..979 2..217 。..940 2..163 (-4.699b

) (7..958α) 1979-1991 2..222 。.762 o 975 1 927

(4 233a) (21498a)

R， 1957-1969 -L093 o 949 。.988 0..910 (-2581b

) (30 744α) 1970-1979 -1 750 L002 。.685 L380

(-0..547 ) (4 530a)

1974-1991 -7..820 L421 0..963 0..873 (ー7.892a) (21 102a)

R2 1957-1974 -10..080 L496 0..996 L142 (-31.007a) (63 966a)

1975-1979 -11.919 L639 。..961 3..038 (-4991b

) (9. 977a)

1974-1981 -16..672 L964 0..897 L987 (-4 591a) (7872a)

1982-1991 -8409 L401 。..984 2..024 ( -9632a) (23816a)

R3 1957-1969 -2..269 L050 0..995 1. 095 (-8051a) (51.085a)

1970-1979 -7..716 L435 。..913 L646 (-3. 627a) (9. 761a)

1974-1991 -8 102 L463 0..988 L028 (-13.906a) (36.950a)

Notes: The values in parentheses are f-values. a and b mean that the variables are significant at the 1% and 5% levels respectively R2 denotes the coefficient of determi-nation. Adj肝 R2denotes adjusted R竺D.W. denotes Durbin-Watson statistic

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relatively small for the period after the structural change-point 1978， and

there might be a decrease in the desirable level of government purchases as

a result of the displacement effect of the recession after the second oil crisis

Similarly， the elasticity of government transfer expenditure 旦 1S

relatively large for the period after the structural change-point 1973 con-

sidering the sub-period 1957-1979 However， cosidering the sub-period

1974-1991， the elasticity of transfer expenditure is relatively small for the

period after the structural change-point 1980.. Therefore， there might be

some increase in the desirable level of transfer expenditure as a result of the

displacement effect due to the reformation of the social security program as

well as the first oil crisis， whereas the desirable level of transfer expendi-

ture appears to decrease as a result of the displacement effect of the

recession after the second oil crisis.. For the total goverment expenditure

E3' while there might be an increase in the desirable level of total govern-

ment expenditure as a result of the displacement effect due to both the

reformation of the social security program and the first oil crisis， there

might be a decrease as a result of the displacement effect due to the

recession after the second oil crisis

IV. B. Examination of the GDP Elasticities of the Government Revenues

We examine the elasticities of the government revenues from the

results in Table 2.. The elasticity of the government tax revenue Rl in-

creased slightly for the period after the structural change-point 1969 con-

sidering the sub-period 1957-1979. Such a result suggests a slight upward

shift in people's ideas about the tolerable burden of tax revenue as a result

of the displacement effectリ Insection IIL we observed that the structural

change-points for government purcases El are not equal to those for

government tax revenue Rl' Therefore， there remains a gap between

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Displacement Effect on Government 691 Expenditure and Government Revenue in Japan， 1957-1991 -383

people's ideas about the tolerable burden of tax revenue and their notions of

the desirable level of government purchases even if a displacement effect on

government purchases occurred

N ext， the elasticity of the social security revenue R2 is relatively large

for the period after the structural change-point 1974 considering the sub-

period 1957-1979， and is relatively small for the period after the structural

change-point 1981 considering the sub-period 1974-199L Therefore， for

the revenue R2， while there might be an upward shift in the tolerable burden

of social security revenue as a result of the displacement effect due to the

reformation of the social security program as well as the first oil crisis， the

displacement effect of the recession after the second oil crisis might give

rise to a downward shift in the tolerable burden of social security revenue..

Such a shift has the same direction as a shift in the desirable level of

transfer expenditureιfor each of the sub-periods 1957-1979 and 1974-

1991引 Insection III， we also observed that the displacement effect on the

social security revenue and the displacement effect on the transfer expendi-

ture might have occurred at the same time approximately for each of the

sub-periods" Thus， we consider that a gap between people's ideas about

the tolerable burden of social security revenue and their notions of the

desirable level of transfer expenditure is likely to tend to be relatively small

after the structural change

Finally， for the sub-period 1957-1979， the elasticity of the total govern-

ment revenue R3 is relatively large for the period after the structural

change-point 1969， and there might be an upward shift in the tolerable

burden of total government revenue.. In this case， similar to the relation

between the government purchases and the government tax revenue， there

remains a gap between people's ideas about the tolerable burden of total

government revenue and their notions of the desirable level of total govern-

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384- Kagawa UniversiかEじonomicRevieω 692

ment expenditure even if a displacement effect on total government expend-

iture occurred..

IV. C. Summury of Findings

From the results of the regression analyses， our findings of this section

are as follows :

(a) For the transfer expenditure ιand the social security revenue R2， the

plausible explanation of the displacement effects on government transfer

expenditure is based basically on the concept of the tolerable burden of

social security revenue. A shift in the desirable level of transfer expendi-

ture has the same direction as a shift in the tolerable burden of social

security revenue.

(b) For the government purchases El and the tax revenue R1， there remains

a gap between people's ideas about the tolerable burden of government tax

revenue and their notions of the desirable level of government purchases

even if the displacement effects on government purchases occurred

(c) For the total expenditure ~ and the total revenue 凡， there also

remains a gap between people's ideas about the tolerable burden of total

government revenue and their notions of the desirable level of total govern-

ment expenditure even if the displacement effects on total government

expenditure occurred

It seems likely that the displacement effect on the transfer expenditure

associated with the reformation of the social security program and the

recession after the first oil crisis occurred because some new expenditures

became highly desirable. This upward shift in the level of transfer expend-

iture also occurred because people got accustomed to a higher burden of

social security revenue after the reformation of the social security program

and the first oil crisis Thus， such a shift in people's ideas about the

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Displacement Effect on Govemment 693 Expenditure and Government Revenue in Japan， 1957-1991 -385-

tolerable burden of social security revenue may shift the transfer expendi-

ture to new levels. This explanation is also given for the displacement

effect due to the World War， which is discussed in Peacock and Wiseman

(1961)

But， the plausible explanation of the displacement effects on the gov-

ernment purchases has to be provided by some other relevant factors except

the concept of the tolerable burden of tax revenue. Considering that the

deficit financing has had important role in the central government revenue

since 1965 in .J apan， the debt financing may determine the level up to which

the changed ideas about the desirable level of government purchases are

implemented.. The burden of debt financing is considered almost zero

during a period of severe depression This explanation is given for the

displacement effect due to the Great Depression as seen in Gupta (1967)

However， dissimilar to Gupta (1967)， we examine the displacement effects

on government revenues as well as those on government expenditures.

As for the relation between the total government expenditure 広 and

the total government revenue R3' we can discuss similarly. The plausible

explanation of the displacement effects on the total expenditure is not

provided only by the concept of the tolerable burden of total revenue.. The

level up to which the changed ideas about the desirable level of total

expenditure are implemented may depend on the debt financing as well as

the tolerable burden of total revenue. Thus， there remains a gap between

people's ideas about the tolerable burden of total government revenue and

their notions of the desirable level of total government expenditure after the

recessions due to the two oil crises as well as the Great Depression..

V. Conclusion

In this paper， we examined the displacement effects on governrnent

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-386'ー Kagawa University EconomiιReview 694

revenues and expenditures using the annual data from 1957 to 1991 in Japan

From the results， we observed that structural change-points for expendi-

tures are not generally equal to those for revenues. This means that the

analyses of the displacement effects on expenditures are generally different

from those on revenues. Thus， analyses of the displacement effects on

revenues also are meaningful though very few studies have examined the

displacement effects on revenues

Particularly， in this papar， we interpreted the structural changes for

expenditures as the shifts in people's ideas of the desirable level of expendi-

tures and the structural changes for revenues as the shifts in their ideas of

the tolerable burden of revenues.. Thus， there is likely to remain a gap

between the two concepts even if the displacement effects on expenditures

occurred引 Inthis case， the plausible explanation of the displacement

effects on expenditures is not provided only by the concept of tolerable

burden of revenues. The debt financing as well as the tolerable burden of

government revenues may determine the level up to which the changed

ideas about the desirable level of government expenditures are imple-

mented..

Acknowledgement

An earlier version of this paper was pasented at the Western meeting of the Japan

Association of E乙onomicsand Econometrics held at Fukuoka University on June， 3，

1995.. We aa grateful to Professor Hideo Nakai， the discussant of the meeting for his

helpful comments Comments and advice by Professor Kazuhiro Ohtani are also grate-

fully acknowledged

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