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Government fiscal projection and debt sustainability

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  • Sakuragawa, Masaya
  • Sakuragawa, Yukie

Abstract

This paper reconsiders Japan’s fiscal sustainability. We investigate whether a simulation conducted under the political constraint imposed by a fiscal reaction function supports the official projection. First, we obtain Japan’s fiscal reaction function by estimating the response of the primary surpluses to the past debt for a panel data set of 23 OECD countries. Next, we investigate the political feasibility of the official projection using our estimated reaction function. When the Cabinet Office criterion is used for the debt-to-GDP ratio, the government can attain the policy target of nonnegative fiscal surpluses and realize fiscal sustainability. Notably, the negative growth-adjusted bond yield and the high growth rate contribute to this finding.

Suggested Citation

  • Sakuragawa, Masaya & Sakuragawa, Yukie, 2020. "Government fiscal projection and debt sustainability," Japan and the World Economy, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:japwor:v:54:y:2020:i:c:s0922142520300116
    DOI: 10.1016/j.japwor.2020.101010
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    3. Srivastava, Dinesh Kumar & Trehan, Ragini & Bharadwaj, Muralikrishna & Kapur, Tarrung, 2021. "Revisiting fiscal responsibility norms: a cross country analysis of the impact of Covid-19," MPRA Paper 108903, University Library of Munich, Germany.
    4. Cao, Hongjie & Li, Meina & Lu, Yuqi & Xu, Yang, 2022. "The impact of strengthening government auditing supervision on fiscal sustainability: Evidence from China's auditing vertical management reform," Finance Research Letters, Elsevier, vol. 47(PB).
    5. Yoshida, Motonori, 2023. "Chronological changes of government sectors’ fiscal policies and fiscal sustainability in Japan," Japan and the World Economy, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Government debt; Primary surpluses; Sustainability; Fiscal projection;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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