An Institution Model for Reforming Japan: Capacity to Budget 

                                                                                    Makiko Ueno & Rudolph G. Penner            

Abstract:

A strong market democracy needs the capacity to budget, because budgeting is the most important mechanism for attaining national policy goals. Allowing people to participate in the budget process is a key ingredient in creating a resilient democracy.

In the early 21st century, Japan is facing enormous economic and social problems that should be debated using solid analysis and the input of a broad range of policy views. Japan’s budget situation is especially alarming in both the short and the long run. Japan does not now have the institutions necessary to address and resolve these problems effectively.

One of the nation's handicaps in this regard is the absence of a sufficient number of competing organizations that might present strong policy analyses and provide a rational framework for budget debates. The American success in imposing fiscal control in the last decade tells us that building consensus was the key to eventually balancing the budget. In the process of developing a consensus, strong democratic institutions need to provide objective analyses, alternative options, and the information that is indispensable for debate and decision-making.

Japan could improve the quality of its budget debate by developing an independent institution that would provide unbiased analyses of budget options.  The institution could be located in the Diet and would serve members of all political parties.  In some ways, the institution would be similar to the United States Congressional Budget Office, but because the role of the Diet in budget preparation is so different from that of the U. S. Congress, the institution would have to be adapted to the Japanese institutional and constitutional environment.


Table of Contents

I. What JapAn Can Learn from the U.S. Fiscal Experience: A Policy Debate. 3

Japan Adrift 4

Policy Analysis: The Core of Policy Debate in a Market Democracy. 7

The U.S. Policy Industry and Market 9

II. Capacity to Budget. 11

Short History of Budget Control 12

Congressional Budget and Impoundment Control Act of 1974. 13

The Congressional Budget Office. 14

III. Japan's Budgets System and Process. 20

Changes and Challenges Ahead. 26

Conclusion: Building a Policy Capacity. 33

Proposal: NIRA INITIATIVE and a Budget Institution Model for Japan.. 36

References. 38

  

I. What JapAn Can Learn from the U.S. Fiscal Experience: A Policy Debate

A state's capacity to govern depends on its capacity to budget. A recent Organization for Economic Cooperation and Development (OECD) report stated, "The budget is the single most important policy vehicle for giving effect to countries' economic and social priorities. It is through the budget process that policy objectives are reconciled and considered in concrete terms. Budgeting requires paying heed to the relationship of the parts to a whole, to the links between tax and spending policies, and to prioritizing among competing claims for public resources"(OECD 2002). Without a carefully conceived budget, governments cannot successfully balance needs and resources, assets and liabilities.

In the late 1990s, the United States managed to balance the budget. This accomplishment was seen as a milestone of modern governance. Even though fiscal control deteriorated once a surplus emerged, the lessons learned during the experience are worth examining by other countries.

A significant part of the success is the result of U.S. public participation in budget debates (via citizens' groups and congressional representatives). One clear lesson from the United States is that rules are useless in a democracy unless they support a goal that is widely shared by a majority of the people (Penner 2002). No one political leader or one policy can solve a nation's budget problem. Holding a rational debate and formulating consensus have been the greatest challenges. In the long process of balancing the U.S. budget, debate was fostered by the work of many think tanks and official bodies. Agencies at all levels of the federal government were influential participants. Having a broad range of stakeholders provide input into the budget process is indispensable in a democracy. Thus, the existence of strong policy debate is the most resilient part of American democracy.   It helps the public understand that it is often necessary to make some very hard choices.

 

Japan Adrift

In early 2003, Japan's debt stands at 140 percent of GDP, the highest among industrialized countries. Unemployment last in September 2002 rose to 5.5 percent, with the rate for men alone reaching 5.6 percent, the highest since World War II. Wages fell at the fastest rate in a decade, and average monthly pay in all industries decreased a nominal 2.2 percent. Tax revenues fell for the 16th straight month in January 2003 and are expected to decline by nearly 11 percent between 2002 and 2003. Lower tax revenue is largely the result of companies' shrinking income, lower workers’ wages, and falling labor participation rates, that of 60.0 percent, decreased by 0.6 percent from previous year. The latest wage and price data confirm fears that deflation is continuing at an alarming rate.

With an ever-falling fertility rate, the total population is projected to decrease after a peak of 127 million in 2006. The population of 65-year-olds and older will reach almost 29 percent of the total population by 2025 and 36 percent by 2050. As the world’s second largest economy, Japan has a GDP of 532 trillion yen, about half that of the United States. In the past decade, the average GDP growth rate was 1.5 percent, far below the levels during Japan’s miraculous economic expansion that followed World War II.

            The Koizumi government said it would reduce expenditures in the fiscal year beginning April 2003 by cutting spending on public works by 3 percent, and that it would review its official development assistance budget, which was already cut by 10 percent in 2002.  Nevertheless, the fall in tax revenues exceeded the spending cuts and the government’s fiscal position has continued to erode. Without a major review, the revenue/spending gap will not improve satisfactorily. However, the government’s intention to curb the increases in Japan's debt faces strong opposition within the ruling party and its constituents.

In early March of 2003, Japan’s Lower House passed an 81.79 trillion yen ($695.4 billion) budget bill for next fiscal year (April 2003 to March 2004).  At the same time, the Ministry of Finance will have to issue 36.45 trillion yen of Japanese government bonds next year to pay for the package, accounting for 44.6 percent of financing for this budget.  That will be the largest amount of debt ever issued for a national budget.

            There is some consensus within the government as well as among some politicians on the need for financial reform and fiscal control.  Takatoshi Ito, a prominent economist and professor of economics at the University of Tokyo, is a former deputy vice minister for international affairs, in the Ministry of Finance.  He was quoted in the press saying said that Prime Minister Junichiro Koizumi had a real chance to turn around the Japanese economy during the coming 50 days, suggesting that to restore mild inflation and to return growth to its potential, Japan needed a package of three policies: the first is to convince the Bank of Japan of the virtues of unconventional monetary policy.  The second is to resist calls for more deficit-financing. The third is to resolve the problem of nonperforming bank loans once and for all (Ito. 2003). Ito warns that if the prime minister misses this chance, and if deflation and deficit financing were to continue for five more years, the debt-to-GDP ratio would climb to 200 percent, pushing Japan to the brink of default.  Such views, however, have not received broad support.

            In the longer term, Japan's dwindling population is a real problem that needs serious attention, including the possibility of opening the nation to immigrants. Nobuko Fukuhara, deputy director of Japan's immigration bureau, was recently quoted as saying “There needs to be a public consensus. If the public decides that it doesn't care whether Japan maintains its productivity level, we can only make policy on that basis (Piling and Nakamoto 2003)." However, no government officials have put the issue on the national agenda. Rather, they avoid conflict and choose “the slow death of a harmonious society (Piling and Nakamoto 2003).

The problems that now face Japan are too large and complicated for lay people to comprehend unless they have much more information and hear a more vigorous, coherent policy debate.  Current debates are often fragmented and sporadic that the public cannot grasp the total picture of the national budget situation or place each policy issue into budgetary context. Recently the Democratic Party, a major opposition party, presented a counter budget proposal. This represented the first important attempt to offer an alternative to the cabinet’s budget proposal, but the arguments were weak because the party has no policy analytic capacity and it has never had any serious research arm or think tank.  This limits the ability of policymakers to come up with systematic approaches to analyzing budget options.

It is obvious that policy proposals, written in a day or so by scholars or by politicians or bureaucrats cannot provide appropriate, long-term solutions. People in Japan think the huge budget deficit is a problem and understand that balancing the budget is an appropriate long-term goal, but they possess little information as to how the goal might be accomplished.

 If Japan should default on its debt explicitly or decide to rid itself of the burden through very high inflation, the harm done would extend far beyond Japan.  The entire world economy might be disrupted.

 

Policy Analysis: The Core of Policy Debate in a Market Democracy

The ideal policy debate provides politicians with a variety of policy options.  The advantages and disadvantages of each option should be clearly articulated. A policy maker will choose an option based on his or her ideology and on his or her view of how the economy works.  While ideology is based on individual tastes, a person’s view of how the economy works should be based on economic science.  Unfortunately, economics is not a very rigorous science and one’s view of how the economy works is often colored by ideology.  That is to say, ideology and science cannot be easily separated.  That is one reason a competition of ideas is essential, with many individuals and institutions playing a role.

The policy analysis process

 Although policy conclusions are often influenced by a policy analyst’s ideology that does not imply that policy analysis is totally devoid of scientific rigor.    Analysts are entitled to their own opinions but cannot make up their own facts.  There may be great uncertainties as to, for example, the effect of a particular tax on work effort and a wide range of respectable estimates is available.  The policy analyst cannot go outside that range and still retain a good reputation. 

 Policy analysis cannot flourish and influence public policy if it is done only in the federal government. In the late 1960s, several major U.S. universities created new educational programs for students who wished to work in the public sector. Programs of public policy and management in graduate study were created at the University of Michigan (1967); the Kennedy School of Government, Harvard University (1968); the Graduate School of Public Policy, University of California, Berkeley (1969); the School of Urban and Public Affairs, Carnegie Mellon University (1969); The Rand Graduate School (1969), and several others.

Although intellectuals have played a role in U. S. policy formulation since the beginning of the republic as individuals moved back and forth from academia to government, policy analysis did not begin to evolve rapidly as a distinct intellectual discipline until the 1960s.

"As one means of attempting to gain better control of federal expenditures, and of seeking the greatest possible efficiencies from such dollars as were to be spent, the Bureau of the Budget fostered and later mandated throughout the federal government, a system of what was called Program Planning and Budgeting (PPBS), which was supposed to rest on careful, detailed analyses of the costs and benefits of programs proposed for expenditure, with multi-year projections of costs. The analytic framework, along with the economic, mathematical and statistical techniques which underlay it, had been brought into the Department of Defense by "the best and the brightest" recruited by Defense Secretary Robert MacNamara during the Kennedy Administration” (Fleishman 1988).

 

The application of analytic techniques to solve problems of public policy, pioneered in the Rand Corporation's defense strategy study, provided a new way to manage public agencies. “The framework for the analytic studies became the basis of the PPBS/Policy Analyses/Planning/Evaluation establishment in the major federal departments”(Fleishman. 1988). Although PPBS ultimately failed because it attempted more analysis than could reasonably be done and because it became bureaucratized as it worked its way down the chain of command, it illustrated that rigorous analysis can inform  policy choices in fields as diverse as defense procurement and housing subsidies.

Together with the establishment of  public policy schools in the late 1960s, public policy analysis was established as a contributor to policy debate and policymaking.

As important as any achievement of policy analysis is the difference it has made by democratizing discourse about public problems. As Aaron Wildavsky makes clear, policy analysis is to public policy what the First Amendment's guarantee of a free press is to democracy as a whole.--By proliferating policy analysis-based groups of individuals-who know and respect the rules and language of the same framework of reasoning and evidence-in the executive branch, in the congress, among contending interest groups, within the academic and think tank community as well as within the world of journalism, policy analysis has created, in truth, a common ground for public discourse. What more beneficial contribution could any institution make to any society? (Fleishman 1988)

 

 

The U.S. Policy Industry and Market

 The United States has created a strong policy analysis and evaluation industry. The American market democracy makes the product of policy analysis compete in an open market. The accomplishment of balancing the U.S. budget over the last decade could be seen as a rare success of American governance and it could be attributed to this market system and its products. As shown below, like products and commodities, policy analysis is produced and distributed.  It is a true public good in that everyone benefits whether or not they pay for it.  Many institutions both inside and outside of government analyze, evaluate, and propose policy alternatives. There is demand for these activities among policymakers, politicians, the media, and the public.

Policy analysis and evaluation activities gave birth to an industry that involved nongovernment institutions--independent, nonprofit think tanks, for profit research firms, university departments and research organizations, and professional societies and associations.

U.S. Policy Industry and Market

 Government Sector

    Institutions

 

 Federal Government

   Executive Branch

     OMB

     Departments

   Legislative Branch

     Committees

     CRS

     GAO

     CBO

State and Local Governments

 Nongovernment

 Sector Institutions

 

Independent

 Think Tanks

 

Academic

 Institutions

 

Profit Seeking

  Research Firms

Trade Associations

 Clients/Sponsors

 

 

 Governments

  Foundations

  Corporations

 

Audience/Users

  Policymakers

  Politicians

  Media/Journalists

  Citizens

  Academics

 

 

[OMB: Office of Management and Budget; CRS: Congressional Research Service;

 GAO: General Accounting Office; CBO: Congressional Budget Office]  By Makiko Ueno

 

            The production of policy research, however, is concentrated in a few big institutions. As many as 1,000 to 2,000 organizations engage in evaluation, but a large portion of all funds is obtained by the largest firms, such as Abt Associates, the Rand Corporation, Mathematica, the Battelle Memorial Institute, the Urban Institute, the Research Triangle Institute, and the American Institutes for Research.

            Evaluation projects are typically funded by public agencies, which are responsible for overseeing the programs in question.  However, they can also be funded by foundations and lobbyists.  On the national level the federal departments have been the main sources of evaluation funds. Often Congress incorporates mandated evaluations into its authorizing legislation, sometimes directing an agency to undertake research. Federal evaluations are typically funded by contract to big research firms, including but not limited to those mentioned above. The major federal agencies that fund evaluation research are the Departments of Education, Labor, Agriculture, Health and Human Services, Housing and Urban Development, Defense, the Environmental Protection Agency, and the General Accounting Office.

            As noted above, philanthropic organizations such as private foundations have made huge amounts of money available for research. The Ford Foundation, the Carnegie-Mellon Foundation and the Rockefeller Foundation (to name just a few) historically have supported independent policy research.  Such private money for public purposes is also a unique characteristic of American capitalism.

The industry hires a variety of talent: policy analysts, social science PhDs, economists, ex-bureaucrats, ex-politicians, scholars, lawyers, researchers, statisticians, computer specialists, accountants, policy dissemination specialists, research entrepreneurs, and research management specialists. The mobility of these skilled professionals between government and the private sector makes the industry powerful and attractive. The more productive and competitive policy analysis and decision-making are, the more the industry enriches policy debate. America's unique democracy views its public sector as everybody's business (Gorham 1998). Eventually the industry strengthens the public sector and government.

 

II. Capacity to Budget

 

            The United States is unusual in that the legislature is the primary mechanism for ensuring that the budget reflects national priorities. In most other democracies, the executive branch has considerably more influence over budget priorities. A budget process is by nature easily closed to outside scrutiny "because of its inherent complexity, the obscure language of budget documents, the impenetrability of tax laws, and the failure of affected interests to invest in budget research and data (OECD 2002).” Essential to a democracy is the availability of independent, readable analyses that offer alternative budget scenarios and options for politicians, who are not able to be policy experts in a wide range of policy areas.

Allen Schick has suggested that efforts to improve the quality of public policy and programs must take into account the institutional competence and capacities of the legislatures that formulate public policies and allocate public funds (Schick 1980). An important step in democratizing the budget process in the United States was the creation of a nonpartisan government institution: the Congressional Budget Office (CBO), which came about with enactment of the Congressional Budget and Impoundment Control Act of 1974. The Congressional Budget Act of 1974 was heralded as a major step in making the Congressional budget process more rational and more transparent. The budget process established by the 1974 Act integrated the separate tax, appropriations, and authorizations processes that continue to function on Capital Hill to this day (Schick 1980). The process purported to give Congress a comprehensive and consistent means of formulating budget options and setting national priorities.

Short History of Budget Control

Regarding the budget, the U.S. Constitution states:

Article I, section 9, clause 7: [n]o money shall be drawn from the Treasury, but in consequence of Appropriations made by Law; and a regular Statement and account of Receipts and Expenditures of all public Money shall be published from time to time.

 

            After the turn of the 20th century, in response to the consensus that a more centralized approach to financial policy and processes was needed in both the executive and legislative branches, the Budget and Accounting Act of 1921 was enacted. The Act codified the submission of the president's budget and created the Bureau of the Budget (the predecessor to the Office of Management and Budget [OMB]) to oversee the executive budget process. The Act also established the General Accounting Office (GAO) as the government's auditor, responsible only to Congress. The Joint Committee on the Reduction of Federal Expenditures was established by the Revenue Act of 1941. Joint Committee staff tracked congressional action against the president's budget request. Scorekeeping reports were published on a regular basis. (The Joint Committee was replaced by the Congressional Budget Office following enactment of the 1974 Act.)

            In 1967 President Lyndon Johnson appointed a commission to make a thorough study of the federal budget and the manner of its presentation. The commission's most important recommendation was that a unified budget presentation replace the several competing and confusing measures of the total scope of federal financial activity. The report of the president's Commission on Budget Concepts serves as the foundation for most budgetary concepts used at the present time (CBO 2002).

Box. Unified Budget: The 1967 President's Commission on Budget Concepts recommended the unified budget and the unified budget system be the basis for federal budgeting starting in 1968. The unified budget replaced a system of budgeting that existed before 1968 (an administrative budget, a consolidated cash budget, and a national income accounts budget.). The unified budget is a comprehensive display of the federal budget. The display includes all revenues and all spending for all regular federal programs and trust funds. This display shows budget totals and transactions. However, transactions of off-budget federal entities are not included in the unified budget.                                       

 

Congressional Budget and Impoundment Control Act of 1974

Increased spending for programs initiated or expanded during the "Great Society" era of President Johnson, combined with escalating expenditures to support military efforts in Vietnam, heightened concern in Congress about budget deficits and spending controls. During the 1972 election campaign, President Richard Nixon asked Congress for authority to cut federal spending at his own discretion so as to stay under a proposed $250 billion ceiling for FY 1973. Congress refused to go along with such an open-ended grant of authority.  After Nixon’s landslide electoral victory in 1972, he aggressively moved to impound (refuse to spend) monies that had been appropriated by the Congress.  He justified his actions by arguing that Congress did not possess a rational budget process.  There was no formal process for adding up revenues and spending or for relating the two sides of the budget.  The Congress knew that it could not attack Nixon’s impoundments without dealing with his criticism that they lacked a reasonable decision making process.

            The Congress responded by passing the Congressional Budget and Impoundment Control Act of 1974.  The Act attempted to rationalize the congressional role in formulating the budget by stating in section 2:

        The Congress declares that it is essential—

(1)     to assure effective congressional control over the budgetary process;

(2)     to provide for the congressional determination each year of the appropriate level of Federal revenues and expenditures;

(3)     to provide a system of impoundment control;

(4)     to establish national budget priorities; and

(5)     to provide for the furnishing of information by the executive branch in a manner that will assist the Congress in discharging its duties.

 

(Congressional Budget and Impoundment Control Act of 1974. Section 2. The Declaration of Purposes) 

 

The Act provided for additional committees and staff. The House and Senate Budget Committees and the Congressional Budget Office were created as a source of nonpartisan analysis and information relating to the budget and the economy.

 

The Congressional Budget Office

The Congressional Budget Office counter-balances the power of the executive branch; it brings analytical, logical thinking to the budget process; and it opens the way to democratizing the budget process. The responsibility and independence with which the CBO is equipped, and the information and data that the CBO provides are invaluable to a society’s basic policymaking capability.

The first CBO director, Alice M. Rivlin, established the internal structure of the office, which has remained largely unchanged since the agency's founding in 1975. Figure 1: An Institution for Analyzing Budget Policies illustrates the CBO’s organization and functions. The CBO model is particularly instructive because it shows the types of policy research necessary to analyze budget policy. The institution employs experts in the macro- and micro-economic analysis of tax, spending, and deficit policies, as well as experts on budget process and accounting issues.

[Figure 1: An Institution for Analyzing Budget Policies]

                            (See Page 44)


Role and Functions. The CBO’s role is to assist Budget Committees, the Committees on Appropriations, Ways and Means, and Finance, and other committees and their members. Their first priority is to assist the House and Senate Budget Committees. On or before April 1 of each year, the CBO director submits a report for the fiscal year commencing on October 1 of that year, with respect to the spending and revenue levels for 10 years into the future implied by current law. The report is based on the CBO’s own economic and technical assumptions. The CBO also provides an analysis of the president’s budget and re-estimates its spending and revenue totals based on CBO assumptions. A supplementary report includes a discussion of national budget priorities, including the advantages and disadvantages of alternative tax and spending policy options. 

The CBO is tasked with three main functions: budgetary assistance, economic analysis, and policy analysis. The budgetary activities prescribed by the Act include providing cost estimates on pending legislation, scorekeeping reports, and making five-year (now 10-year) budget projections. About half of the CBO’s resources are devoted to providing cost estimates for all bills reported out of committee, many of which won't be enacted.

To implement these tasks, the CBO has access to all data generated by federal departments. It has subpoena power to obtain data, although it never has to use it.  To support its role, the Act authorized the CBO’s director to secure information, data, estimates, and statistics directly from the various departments and agencies of the government executive branch and regulatory agencies and commissions. Also the director can obtain information developed by the General Accounting Office, the Library of Congress, and other agencies and utilize their services, facilities, and personnel with or without reimbursement. The CBO director’s access to data is indispensable to the functioning of the CBO.

Responsibility and Independence. The first director of the CBO, Alice Rivlin, vigorously claimed institutional independence and enhanced CBO’s capacity to do policy analysis. She believed that policy analysis cannot flourish without political independence. Rivlin's model for the CBO was a combination of two entities that were strong on policy analysis: the Office of the Assistant Secretary for Planning and Evaluation (ASPE) in then Department of Health, Education, and Welfare, where she served as director after William Gorham; and the Brookings Institution, where she had worked and produced the Setting National Priorities series (Schick 1980).

BOX: The Brooking’s Initiative: In 1970 the Brookings Institution first published a book entitled; "Setting National Priorities," edited by Charles L. Schultze and other staff members. The authors sought to explain the 1971 federal budget as a set of decisions about national priorities made in the crucible of limited resources. They first examined the budget as a whole, its impact on the national economy, and its proposed allocation of funds among competing public programs. The authors’ purpose was to explain the significance of the decisions reflected in the budget, not to judge them (Schultze et. al. 1970). Since then, Brookings has published the series. The publication helped to develop the analytic view of public policy and set the course of policy debate. Table 1 shows the contents of four publications in 1970, 1971, 1992, and 2000.

 

So far the CBO has retained its independence, but this independence must be guarded constantly. One key factor is the selection of the CBO director. The Congressional Budget Act of 1974 spells out the procedures for appointing CBO's director and staff.  The Speaker of the House of Representatives and the President pro tempore of the Senate jointly appoint the CBO director, after considering recommendations from the two budget committees. The term of office is four years, with no limit on the number of terms a director may serve. Either house of Congress, however, may remove the director by resolution.  The fixed term and the difficulty in removing a director protect his or her independence.  The appointment process is unfortunately flawed in that it can be time-consuming if the House and Senate disagree.  There is no tie breaker.

The CBO has had six directors since its inception in 1975. Douglas Holtz-Eakin is the current director. He was preceded by Dan L. Crippen, June E. O'Neil, Robert D. Reischauer, Rudolph G. Penner, and Alice M. Rivlin.

The director appoints all CBO staff, including the deputy director. Appointments are based solely on professional competence, without regard to political affiliation. For purposes of pay and employment benefits, all staff are treated as employees of the House of Representatives. The compensation of the director and the deputy director is set by law at levels tied to the annual rate of compensation of House and Senate officers. The director determines the compensation of all other staff (CBO 2002).  The CBO had a staff of 232 and a $32 million budget in 2002.

Providing Budget Information. The Congressional Budget Act and Impoundment Control Act of 1974 stated that the director should make all information, data, estimates, and statistics obtained available to the public. CBO prepares independent analyses and estimates. "The office routinely discloses the assumptions and methods it uses, which enhances the general perception of its products as objective and impartial" (Weiss 1992). The information and analysis are for the Congress and ultimately for the people. To produce and provide open and readable policy information is CBO’s most important role.

 The CBO provides much of the basic policy information necessary for debate on national priorities and options. CBO is organized into divisions. The two functions of cost estimating and policy analysis of spending programs are kept separate, with the latter organized according to budget function.  Other divisions specialize in macroeconomic issues, long-term modeling and tax policy.  Many projects require considerable cooperation among divisions.

BOX. Computer Technology and Budgeting: The 1974 Act proclaimed that the use of computers and other technology was fundamental to the operation of the CBO. It states that the director should provide the office with up-to-date computer capability, and obtain the services of experts and consultants in computer technology, and develop techniques for the evaluation of budgetary requirements. The evolution of computer technologies may be the most significant contribution to the budgeting process.

 

 

Functional Budgeting. The Congressional Budget Act of 1974 requires the Congress to estimate outlays, budget authority, and tax expenditures for each function. The functional classification is a means of presenting budget authority, outlay, and tax expenditure data in terms of the principal purposes of federal programs with single functions (e.g., national defense, international affairs, health) that best represent its major purpose, regardless of the agency administering the program.  The functional budgeting system that was required by the Act is important in providing a better understanding of debates about budget policies.

The functional classification, used in the United States, set in section 201 of the Budget and Accounting Act, 1921, is shown below. As reference for later discussion, the table also lists Japan’s major governmental activities that are equivalent to the U.S. budget functional classification.

Table 2. Budget Functional Classification           

U.S.A.                                                               Japan: Major Government Activities

Code

Function of subfunction 

 

Code

 

050

National Defense

01

Social Security: Social Insurance, Social

        Welfare, Public Assistance, etc.

150

International Affairs

10

Education and Science: Compulsory Education

Services, National Schools special Account, etc

250

General Science, Space , and Technology 

 

20

National Debt Service

270</