Fiscal policy, which is a form of economic activity by the government, has three functions.
  The first is to allocate resources. This function allows the government, acting from the standpoint of the national economy, to provide goods and services that would not be provided at all, or not provided sufficiently, if left entirely to the market mechanism.
  The second function is to redistribute income. In order to ease excessive inequality in incomes, the government can adopt a progressive tax system on the revenue side and undertake social security measures on the expenditure side.
  The third function is to adjust the economy. By assisting recovery when the economy is declining, and by applying the brakes when the economy overheats and the danger of inflation arises, the government can preserve economic stability.

The Fiscal Investment and Loan Program, a mechanism that links interest-bearing funds and their management with appropriate policies, is a part of fiscal policy.
  Since the FILP uses the financial techniques of lending and recovering funds with interest, it offers the merits of appropriately examining individual projects on profitability, flexible implementation and effect on restraining increases in the tax burden on the Japanese people. With such distinctive features, the FILP reduces policy costs in terms of the tax burden on the public and, at the same time, aims to fulfill the functions of resource allocation and cyclical adjustment.

Concept behind the Fiscal Investment and Loan Program

It may be easier to comprehend the two functions of the FILP more concretely by posing the question, "What if there were no FILP?"
  Without the FILP, if goals such as the provision of social infrastructure or policies for small and medium-sized businesses were to be smoothly pursued, tax revenues would be needed to cover the costs. In that case, the tax burden on the people would have to be increased.
  If such an increase in the tax burden were to be avoided, resources could not be sufficiently allocated. For example, road construction would fall behind and improvements in the quality of life would be delayed.
  Moreover, if the government did not use interest-bearing funds, relying instead on grant assistance using tax revenues, then in some areas, grant recipients might not exercise the needed self-discipline in undertaking projects, and policy goals might not be fully met.
  Furthermore, without the FILP, the government would lose a policy tool for flexibly implementing economic measures. There would therefore be a danger that the government could not sufficiently allocate resources and adjust the economy, and the realization of our present convenient and comfortable standard of living would have been greatly delayed. The FILP is an indispensable mechanism that makes a major contribution to the national economy.

New Tokyo International Airport (Chiba)

The FILP provides long-term, fixed, and low-interest financing that private financial institutions cannot provide, and it does so without increasing the tax burden on the public. Thus, the FILP can fulfill the resource-allocation function in areas where some burden should be asked of beneficiaries or in areas where private-sector financing should be supplemented.
  Because the FILP is a means of fiscal policy that uses financial techniques, allocation shares are not rigid; in fact, allocation targets can easily be adjusted. This allows effective and flexible resource allocation to match changing economic and social conditions and meet the needs of the Japanese people. Moreover, since its resources are interest-bearing funds, the FILP places great priority on ensuring repayment from the projects it finances.
  Specifically, the FILP allocates resources through the following two methods:

(1) Operating agencies such as the Japan Highway Public Corporation.
Such agencies use FILP funds to undertake enterprise operations. Resources are allocated to the public sector.

(2) Lending agencies such as the National Life Finance Corporation and the Development Bank of Japan.
These agencies provide FILP funds to private businesses, allocating resources to the private sector, such as small and medium-sized businesses, housing construction and international cooperation.

Agigawa Dam (Gifu)

The FILP is part of fiscal policy and plays a major role in "discretionary counter-cyclical adjustments."  In other words, the FILP supplies its funds flexibly as required by changes in social and economic conditions, which enables it to operate counter-cyclically to stabilize these changes.
  In FY 1998, for example, the government enacted a "Comprehensive Economic Package" and an "Emergency Economic Package" in order to stimulate economic recovery. Additional fund allocations to the FILP were a part of these packages. In FY 1999, additional fund allocations were made in conjunction with the "Economic Regeneration Program", in FY 2000, in conjunction with the "New Development Policy for the Rebirth of Japan."
  There are other measures, in addition to budget supplements, that facilitate the "cyclical adjustment functions" of the FILP. When authorized to do so in the general provisions of the budget, FILP agencies can increase the amount of their planned loans by up to 50% during the year in order to meet unforeseen changes in planned economic conditions or for other such unavoidable reasons. This is called the "flexible management" clause. There is, however, a cap of 25% of planned FILP financing for total additional FILP financing.

FILP Plan Trends

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