Japan's oligopolies: Potential economy wide gains from structural reforms

Abstract

Japan's slowdown preceded those in the other advanced economies and is therefore of global significance. While its initial causes were financial, a resurgence will depend on productivity growth, key determinants of which are investment and industrial structure. This paper focuses on the costs of a structure dominated by oligopolies and the potential gains from combined competition and tax reform. We first identify industry concentration levels and economic rents using firm specific data and then incorporate these in a calibrated economy-wide model. Simulations suggest that competition policy and more openness to investment in services could deliver 5-17% of additional GDP. These stimulate investment via returning external wealth. Gains are spread most evenly if competition policy is combined with company tax reform. This retains fiscal balance and improves the domestic purchasing power of all Japanese incomes. Show more