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A Numerical Evaluation on a Sustainable Size of Primary Deficit in Japan

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  • Real Arai

    (Graduate School of Social Sciences, Hiroshima University)

  • Junji Ueda

    (Policy Research Institute, the Ministry of Finance, Japan)

Abstract

We investigate how large a size of primary deficit to GDP ratio the Japan's government can sustain. For this investigation, we construct an overlapping generations model, in which multi-generational households live and the government maintains a constant ratio of primary deficit to GDP. We numerically show that the primary deficit cannot be sustained unless the rate of economic growth is unrealistically high, which is more than five percent according to our settings. Our result implies that Japan's government needs to achieve a positive primary balance in the long-run in order to avoid the divergence of the public debt to GDP ratio.

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File URL: http://www.mof.go.jp/pri/research/discussion_paper/ron235.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Policy Research Institute, Ministry of Finance Japan in its series Discussion papers with number ron235.

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Length: 30 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:mof:wpaper:ron235

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Web page: http://www.mof.go.jp/pri/
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Keywords: fiscal sustainability; public debt; primary deficit; economic growth;

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References

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  1. Toshihiro Ihori & Ryuta Ray Kato & Masumi Kawade & Shun-ichiro Bessho, 2005. "Public Debt and Economic Growth in an Aging Japan," CIRJE F-Series CIRJE-F-372, CIRJE, Faculty of Economics, University of Tokyo.
  2. Daisuke Ishikawa & Junji Ueda & Real Arai, 2012. "Future Changes of the Industrial Structure due to Aging and Soaring Demands for Healthcare Services in Japan - an Analysis Using a Multi-Sector OLG Model in an Open Economy -," Discussion papers ron243, Policy Research Institute, Ministry of Finance Japan.
  3. Selahattin Imrohoroglu & Nao Sudo, 2011. "Will a Growth Miracle Reduce Debt in Japan?," IMES Discussion Paper Series 11-E-01, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Masaya Sakuragawa & Kaoru Hosono, 2010. "Fiscal Sustainability Of Japan: A Dynamic Stochastic General Equilibrium Approach," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 517-537, December.
  5. Real Arai, 2011. "Productive Government Expenditure and Fiscal Sustainability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(4), pages 327-351, December.
  6. Yakita, Akira, 2008. "Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 897-914, April.
  7. Shigeyuki Hamori, 1996. "Consumption growth and the intertemporal elasticity of substitution: some evidence from income quintile groups in Japan," Applied Economics Letters, Taylor and Francis Journals, vol. 3(8), pages 529-532.
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Cited by:
  1. Muto, Ichiro & Oda, Takemasa & Sudo, Nao, 2012. "Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model," MPRA Paper 42550, University Library of Munich, Germany.

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