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The optimum quantity of debt for an aging Japan: welfare and demographic dynamics

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  • Akira Okamoto

    (Okayama University)

Abstract

Japan’s government is heavily indebted, and the current net debt tends to increase. This paper uses an extended life-cycle general equilibrium model with endogenous fertility to investigate an optimal size of government debt from two viewpoints: individual welfare and future demographic dynamics. A simulation analysis finds that the level of net government debt, which maximizes per-capita utility, is negative at − 220% of Japan’s gross domestic product (GDP). The results also indicate that the net debt-to-GDP ratio of − 220% produces a considerable per-capita welfare gain; however, compared to the baseline simulation with a debt-to-GDP ratio of 150%, it substantially decreases the total population in the long run.

Suggested Citation

  • Akira Okamoto, 2025. "The optimum quantity of debt for an aging Japan: welfare and demographic dynamics," The Japanese Economic Review, Springer, vol. 76(1), pages 1-52, January.
    • Handle: RePEc:spr:jecrev:v:76:y:2025:i:1:d:10.1007_s42973-024-00156-7
    DOI: 10.1007/s42973-024-00156-7
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    More about this item

    Keywords

    Government debt; Welfare; Demographic dynamics; Japanese economy; Simulation analysis;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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