Will a Growth Miracle Reduce Debt in Japan?
AbstractJapan has the highest debt to GDP ratio among the developed nations. In addition, the population is projected to age rapidly over the next few decades, which will significantly increase the ratio of government expenditures to GDP. In this paper, we explore the effect of economic growth driven by total factor productivity on Japanese debt in the face of higher future social security expenditures. Our main finding is that a decade of unprecedentedly fast growth of total factor productivity, at an average of 6% per year, is needed in order for Japan to eliminate its debt. Since this is very unrealistic, what is needed is a significant reduction in government expenditures together with an increase in the consumption tax rate, to eliminate debt in forty years.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 11-E-01.
Date of creation: Jan 2011
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Government Debt; Productivity; Fiscal Policy;
Other versions of this item:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
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