How Inclusive Is Abenomics?

We assess the ongoing reform efforts in Japan in terms of inclusive growth. We useprefectural level panel data to regress a measure of inclusive growth, which incorporatesboth average income growth and income inequality, on macroeconomic and policyvariables. Our analysis suggests that achieving the Bank of Japan's 2 percent inflationtarget has a positive effect on average income growth, but an adverse effect on incomeequality. The package of structural reforms planned under Abenomics is found to beeffective in increasing both average income growth and income equality. The main policyimplication of our analysis is that full implementation of structural reforms– especiallylabor market reforms–is necessary to both foster growth and increase equality.