Attachment to
Report on the Current Surplus Reduction Plan

Results of the Analysis of Economic Effects Attributable to Increasing Public Works Investment and Reforming the Tax System

Effects of Various Measures in FY 1997

Assumptions of the Standard Model:

Nominal public capital formation is assumed to grow 3 to 4% annually (FY '95 42.9 trillion yen, FY '96 44.2 trillion yen, FY '97 45.9 trillion yen). The government's 630 trillion Basic Plan for Public Investment running from FY 1995 to FY 2004, can be achieved at an annual growth rate of 4%, and the standard model was set-up with this as the base.
It is assumed that the consumption tax will be increased to 5% from April 1997 and that the 2 trillion yen special income tax reduction will be discontinued in FY 1997.
Modified version of the Nikkei NEEDS Model was used.

Standard
Model		 Trial
Calculation 1

Public
Investment
Increased

 Trial
Calculation 2

Corporation
Tax Reduced

 Trial
Calculation 3

Income Tax
Reduction
Continued

 Trial
Calculation 4

Trial
Calculations
1-3 Integrated

Nominal GDP (trillion yen)
(lower row is % of difference)		490.6 495.2
+0.9 %		492.7
+0.4 % 		491.7
+0.2 %		498.6
+1.6 %
Real GDP (trillion yen)
(lower row is % of difference)		442.6 446.0
+0.8 %		444.4
+0.4 %		 443.5
+0.2 %		448.8
+1.4 %
Real Private Consumption
(trillion yen)
(lower row is % of difference)		256.0 256.8
+0.3 %		256.5
+0.2 %		 257.1
+0.4 %		258.4
+0.9 %
Real Private Investment
[Non- resi. Investment]
(lower row is % of difference)		75.8 76.7
+1.2 %		78.3
+3.2 %		 75.9
+0.1 %		79.3
+4.6 %
Current Balance ($100 million)
(lower row is margin of difference)		1103 1004
-99		1031
-73		 1078
-26		902
-202
Trade Balance ($100 million)
(lower row is margin of difference)		1251 1181
-70		1195
-57		 1235
-16		1105
-146
Exports ($100 million)
(lower row is margin of difference)		4974 4950
-24		4962
-12		 4969
-5		4933
-41
Imports ($100 million)
(lower row is margin of difference)		3722 3769
+47		3767
+45		 3734
+11		3828
+105
Ratio of Current Surplus to
Nominal GDP
(lower row is margin of difference)		2.14 % 1.93 %
-0.21 %		1.99 %
-0.15 %		 2.08 %
-0.06 %		1.72 %
-0.42 %

Results of the Trial Calculations:

  1. In Trial Calculation 1, Basic Plan for Public Investment at the rate described below:

    The government's 630 trillion yen Basic Plan for Public Investment running from FY 1995 to 2004, can be attained at an annual rate of increase of about 6% until FY 1999 and of 0% afterwards. Trial Calculation 1 was set up with this as the base.

    FY '95FY '96FY '97
    Public Investment (yen)44.1 tril.46.8 tril.49.6 tril.
    (Increase Over Previous Year)6 %6 %6 %

  2. In Trial Calculation 2, the effective corporation tax rate is reduced from 50% to approximately 40%, starting in FY 1996.

  3. In Trial Calculation 3, the 2 trillion yen income tax reduction is continued in FY 1997.

  4. In Trial Calculation 4, the measures of Trial Calculations 1 to 3 are integrated.

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