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Sustainability of government debt: preconditions for stability in the financial system and prices

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  • Shirakawa, M.

Abstract

In Japan’s case, the drop in the potential growth rate and concerns about the future tax and pension burden have given households and firms the incentive to spend less and save more. This has led to deflationary pressures and low interest rates. However, this situation is not sustainable in the long-run. A combination of measures to improve the longer-term fiscal outlook and to enhance potential growth needs to be implemented aggressively. The social costs of implementing such measures are large. However, if the government’s fiscal outlook loses credibility, the costs would become even greater.

Suggested Citation

  • Shirakawa, M., 2012. "Sustainability of government debt: preconditions for stability in the financial system and prices," Financial Stability Review, Banque de France, issue 16, pages 169-181, April.
  • Handle: RePEc:bfr:fisrev:2011:16:16
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/financial-stability-review-16_2012-04.pdf
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    2. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-638, August.
    3. Reinhart, Carmen & Kirkegaard, Jacob & Sbrancia, Belen, 2011. "Financial repression redux," MPRA Paper 31641, University Library of Munich, Germany.
    4. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters,in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
    5. Uribe, Martin, 2006. "A fiscal theory of sovereign risk," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1857-1875, November.
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    Cited by:

    1. Landau, J.P., 2012. "Policies on sovereign debt," Financial Stability Review, Banque de France, issue 16, pages 191-201, April.

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