IDEAS home Printed from https://ideas.repec.org/p/ehs/wpaper/7013.html
   My bibliography  Save this paper

Sustainability of Public Debt: Evidence from Pre-World War II Japan

Author

Listed:
  • Masato Shizume

    (Kobe University)

Abstract

"Japan defaulted on its public debts only once throughout its modern history, after World War II (WWII). How did Japan lose its ability to sustain its public debts? This paper explores the sustainability of public debts in Japan before and during WWII. First, this paper reviews the brief history of pre-WWII public finance in Japan with reference to some narrative evidence, data, and previous works. Second, this paper conducts three stages of econometric analyses. It tests Ricardian neutrality of public debt. It tests the dynamic efficiency of Japanese economy, and it conducts Bohn’s tests for the relationship between public debt and primary fiscal balance. The tests indicate that Japanese public debts were sustainable until 1931, and unsustainable in and after 1932. Third, this paper interprets the results of quantitative analyses with narrative modes of analysis. During the 1930s, Japan lost its fiscal discipline because of the military’s effective veto over budgetary processes and because of the absence of pressure for sound fiscal policy from international financial markets."

Suggested Citation

  • Masato Shizume, 2007. "Sustainability of Public Debt: Evidence from Pre-World War II Japan," Working Papers 7013, Economic History Society.
    • Handle: RePEc:ehs:wpaper:7013
    as

    Download full text from publisher

    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp201.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ghatak, Subrata & Sánchez-Fung, José R., 2006. "Is Fiscal Policy Sustainable in Developing Economies?," Discussion Papers 384, VATT Institute for Economic Research.
    2. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 1-19.
    3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    4. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    5. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316, National Bureau of Economic Research, Inc.
    6. Ihori, Toshihiro & Doi, Takero & Kondo, Hiroki, 2001. "Japanese fiscal reform: fiscal reconstruction and fiscal policy," Japan and the World Economy, Elsevier, vol. 13(4), pages 351-370, December.
    7. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    8. Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series 1446, CESifo.
    9. Michael D. Bordo, 1995. "The Gold Standard as a `Good Housekeeping Seal of Approval'," NBER Working Papers 5340, National Bureau of Economic Research, Inc.
    10. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    11. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133, Decembrie.
    12. Barro, Robert J, 1986. " U.S. Deficits since World War I," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 195-122.
    13. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
    14. Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approvalâ€," The Journal of Economic History, Cambridge University Press, vol. 56(2), pages 389-428, June.
    15. Subrata Ghatak & José R. Sánchez‐Fung, 2007. "Is Fiscal Policy Sustainable in Developing Economies?," Review of Development Economics, Wiley Blackwell, vol. 11(3), pages 518-530, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Denise Côté & Christopher Graham, 2004. "Convergence of Government Bond Yields in the Euro Zone: The Role of Policy Harmonization," Staff Working Papers 04-23, Bank of Canada.
    2. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 163-178, Spring.
    3. Roberto Ricciuti, 2003. "Assessing Ricardian Equivalence," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 55-78, February.
    4. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 45-68, Spring.
    5. Sebastian Edwards & Francis A. Longstaff & Alvaro Garcia Marin, 2015. "The U.S. Debt Restructuring of 1933: Consequences and Lessons," NBER Working Papers 21694, National Bureau of Economic Research, Inc.
    6. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 163-178, Spring.
    7. Ibrahim Ari & Muammer Koc, 2018. "Sustainable Financing for Sustainable Development: Understanding the Interrelations between Public Investment and Sovereign Debt," Sustainability, MDPI, vol. 10(11), pages 1-25, October.
    8. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    9. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    10. Vito Tanzi & Howell H. Zee, 1997. "Fiscal Policy and Long-Run Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 179-209, June.
    11. María Lorena Marí Del Cristo & Marta Gómez-Puig, 2013. "Fiscal dynamics in a dollarized, oil-exporting country: Ecuador," Working Papers 13-06, Asociación Española de Economía y Finanzas Internacionales.
    12. Kyung-woo Lee & Jong-Hee Kim & Taeyoon Sung, 2018. "A test of fiscal sustainability in the EU countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1170-1196, October.
    13. Ang, James B., 2008. "What are the mechanisms linking financial development and economic growth in Malaysia," Economic Modelling, Elsevier, vol. 25(1), pages 38-53, January.
    14. Meissner, Christopher M., 2014. "Growth from Globalization? A View from the Very Long Run," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 8, pages 1033-1069, Elsevier.
    15. Abdur Chowdhury, 2001. "The Impact of Financial Reform on Private Savings in Bangladesh," WIDER Working Paper Series DP2001-78, World Institute for Development Economic Research (UNU-WIDER).
    16. Neto, David, 2020. "Tracking fiscal discipline. Looking for a PIIGS on the wing," International Economics, Elsevier, vol. 163(C), pages 147-154.
    17. Piotr Krajewski, 2017. "Czy szacując efekty polityki makroekonomicznej należy uwzględniać perspektywę planowania gospodarstw domowych?," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 39-61.
    18. Tunçer, Coşkun, 2012. "Monetary sovereignty during the classical gold standard era: the Ottoman Empire and Europe, 1880-1913," Economic History Working Papers 44725, London School of Economics and Political Science, Department of Economic History.
    19. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters, in: Globalization in Historical Perspective, pages 121-188, National Bureau of Economic Research, Inc.
    20. Jonathan Heathcote, 2005. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 161-188.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehs:wpaper:7013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chair Public Engagement Committe (currently David Higgins - Newcastle) (email available below). General contact details of provider: https://edirc.repec.org/data/ehsukea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.