Public Debt and the Macroeconomic Stability of Japan
AbstractRecently, the outstanding debt of the Japanese government amounts to 695 trillion yen, which implies 139.5% of GDP. In this paper, we constructed three IS-LM type dynamic models and estimate the eigenvalues of their differential systems. Then we confirm whether or not the huge amount of public debt violates the stability conditions for the Japanese economy. Our estimation concludes the Japanese economy to be unstable with the existence of a saddle-point equilibrium. Our simulation also shows that severe tax reform would be required to restore the economic stability. Concretely, the government has to raise the consumption tax rate to 15% from 5%, and in addition, allowing the income elasticities of income taxes and inhabitant taxes to increase by 0.033 each, which is equivalent to tax hikes of about 8.3 trillion yen. We assert that structural reform for the government budget including a tax system is essential and emergent.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22603.
Date of creation: Jan 2005
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public debt; Japan; macroeconomic stability; saddle-point equilibrium; structural reform;
Other versions of this item:
- Keigo Kameda & Masao Nakata, 2005. "Public Debt and the Macroeconomic Stability of Japan," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 1(1), pages 49-90, March.
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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