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A numerical evaluation of the sustainable size of the primary deficit in Japan

  • Arai, Real
  • Ueda, Junji

We investigate how large a primary deficit-to-GDP ratio 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 the 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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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 30 (2013)
Issue (Month): C ()
Pages: 59-75

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Handle: RePEc:eee:jjieco:v:30:y:2013:i:c:p:59-75
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  1. 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.
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