Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability
Abstract
We analyze fiscal policy and fiscal sustainability in Japan using a variant of the methodology developed in Blanchard (1990). We find that Japan can achieve fiscal sustainability over a 100-year horizon with relatively small changes in the tax-to-GDP ratio. Our analysis differs from more pessimistic analyses in several dimensions. First, since Japanese net debt is only half that of gross debt, we demonstrate that the current debt burden is much lower than is typically reported. This means that monetization of the debt will have little impact on Japan's fiscal sustainability because Japan's problem is the level of future liabilities not current ones. Second, we argue that one obtains very different projections of social security burdens based on the standard assumption that Japan's population is on a trend towards extinction rather than transitioning to a new lower level. Third, we demonstrate that some modest cost containment of the growth rate of real per capita benefits, such as cutting expenditures for shrinking demographic categories, can dramatically lower the necessary tax burden. In sum, no scenario involves Japanese taxes rising above those in Europe today and many result in tax-to-GDP ratios comparable to those in the United States.Download Info
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10988.Length:
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:nbr:nberwo:10988
Note: AG ITI PE
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Related research
Keywords:Find related papers by JEL classification:
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H5 - Public Economics - - National Government Expenditures and Related Policies
- H6 - Public Economics - - National Budget, Deficit, and Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-20 (All new papers)
- NEP-MAC-2004-12-20 (Macroeconomics)
- NEP-PBE-2004-12-20 (Public Economics)
- NEP-SEA-2004-12-20 (South East Asia)
References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Eduardo Levy Yeyati and Federico Sturzenegger, 2007.
"A Balance-Sheet Approach to Fiscal Sustainability,"
Business School Working Papers
balancesheet, Universidad Torcuato Di Tella.
- Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2007. "A Balance-Sheet Approach to Fiscal Sustainability," Working Paper Series rwp07-044, Harvard University, John F. Kennedy School of Government.
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- Toshihiro Ihori, 2006. "Fiscal policy and fiscal reconstruction in Japan," International Tax and Public Finance, Springer, vol. 13(4), pages 489-508, August.
- Laurence M. Ball, 2006.
"Fiscal Remedies for Japan’s Slump,"
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in: Monetary Policy under Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 279-306
National Bureau of Economic Research, Inc.
- Laurence Ball, 2005. "Fiscal Remedies for Japan's Slump," NBER Working Papers 11374, National Bureau of Economic Research, Inc.
- James Harrigan & Kenneth Kuttner, 2004. "Lost Decade in Translation: Did the US Learn from Japan's Post-Bubble Mistakes?," NBER Working Papers 10938, National Bureau of Economic Research, Inc.
- Mitsuru Iwamura & Takeshi Kudo & Tsutomu Watanabe, 2005. "Monetary and fiscal policy in a liquidity trap: the Japanese experience 1999-2004," Proceedings, Federal Reserve Bank of San Francisco.
- Douglas H. Joines & R.Anton Braun & Daisuke Ikeda, 2008.
"The saving rate in Japan: Why it has fallen and why it will remain low,"
CARF F-Series
CARF-F-117, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, 2009. "The Saving Rate In Japan: Why It Has Fallen And Why It Will Remain Low," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 291-321, 02.
- R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, 2007. "The Saving Rate in Japan: Why It Has Fallen and Why It Will Remain Low," CIRJE F-Series CIRJE-F-535, CIRJE, Faculty of Economics, University of Tokyo.
- Gary Saxonhouse & Robert Stern, 2005. "Reversal of fortune: Macroeconomic policy, International Finance, and Banking in Japan," International Economics and Economic Policy, Springer, vol. 2(2), pages 91-100, November.
- Sinha, Pankaj & Arora, Varun & Bansal, Vishakha, 2011. "Determinants of Public Debt for middle income and high income group countries using Panel Data regression," MPRA Paper 32079, University Library of Munich, Germany.
- Mitsuru Iwamura & Takeshi Kudo & Tsutomu Watanabe, 2005. "Monetary and Fiscal Policy in a Liquidity Trap: The Japanese Experience 1999-2004," Discussion papers 05009, Research Institute of Economy, Trade and Industry (RIETI).
- Botman, Dennis & Edison, Hali & N'Diaye, Papa, 2009.
"Strategies for fiscal consolidation in Japan,"
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