Inequalities in Japanese Economy during the Lost Decades

Abstract

This paper explores the development of inequalities in income, consumption, and wealth among Japanese households from the 1980s to the 2000s, a period that spans the bursting of Japan’s bubble economy (1991Q1) and the banking crisis (1997Q4). We find that inequality of income and consumption widened during those three decades, and inequality of wealth increased, except for during the period after the bubble burst. Income inequality grew noticeably during the bubble era and periods after the banking crisis and the growth rate was particularly high during the former period. The two crises affected income inequality differently. The bubble burst led to a slow income growth for all households without greatly affecting the distribution of income, whereas the banking crisis dampened income growth exclusively among lowquantile households, exacerbating income inequality. Although the distributional effect of government policy was important, the general pattern of income inequality carried over into inequality in consumption. The dimensions of that carryover, however, diminished after the bubble burst, suggesting compositional changes in income shocks. The inequalities over life cycle are also discussed.