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A Numerical Evaluation on a Sustainable Size of Primary Deficit in Japan

Author

Listed:
  • Real Arai

    (Graduate School of Social Sciences, Hiroshima University)

  • Junji Ueda

    (Policy Research Institute, the Ministry of Finance, Japan)

Abstract

We investigate how large a size of primary deficit to GDP ratio the 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 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.

Suggested Citation

  • Real Arai & Junji Ueda, 2012. "A Numerical Evaluation on a Sustainable Size of Primary Deficit in Japan," Discussion papers ron235, Policy Research Institute, Ministry of Finance Japan.
  • Handle: RePEc:mof:wpaper:ron235
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    References listed on IDEAS

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    1. Imrohoroglu, Selahattin & Sudo, Nao, 2011. "Will a Growth Miracle Reduce Debt in Japan?," Economic Review, Hitotsubashi University, vol. 62(1), pages 44-56, January.
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    19. Daisuke Ishikawa & Junji Ueda & Real Arai, 2012. "Future Changes of the Industrial Structure due to Aging and Soaring Demands for Healthcare Services in Japan - an Analysis Using a Multi-Sector OLG Model in an Open Economy -," Discussion papers ron243, Policy Research Institute, Ministry of Finance Japan.
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    Cited by:

    1. Nakajima, Tomoyuki & Takahashi, Shuhei, 2017. "The optimum quantity of debt for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 46(C), pages 17-26.
    2. Ichiro Muto & Takemasa Oda & Nao Sudo, 2016. "Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 408-442, August.
    3. Futagami, Koichi & Konishi, Kunihiko, 2018. "Dynamic analysis of budget policy rules in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 50(C), pages 72-88.
    4. Kitao, Sagiri, 2015. "Pension reform and individual retirement accounts in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 111-126.
    5. Miyazawa, Kensuke & Yamada, Junji, 2015. "The growth strategy of Abenomics and fiscal consolidation," Journal of the Japanese and International Economies, Elsevier, vol. 37(C), pages 82-99.
    6. Real Arai & Masahiko Nakazawa, 2014. "A numerical analysis of Japan's fiscal sustainability in a simple OLG model," Applied Economics Letters, Taylor & Francis Journals, vol. 21(17), pages 1194-1197, November.
    7. Ko, Jun-Hyung & Morita, Hiroshi, 2015. "Fiscal sustainability and regime shifts in Japan," Economic Modelling, Elsevier, vol. 46(C), pages 364-375.
    8. Yoshinori Nakagawa & Real Arai & Koji Kotani & Masanobu Nagano & Tatsuyoshi Saijo, 2018. "Is an intergenerational retrospective viewpoint effective in forming policy preferences for financial sustainability in local and national economies? A deliberative experimental approach," Working Papers SDES-2018-6, Kochi University of Technology, School of Economics and Management, revised Sep 2018.
    9. Tomomi Miyazaki & Kazuki Onji, 2017. "The Sustainability of Japan's Government Debt: A Review," Discussion Papers 1716, Graduate School of Economics, Kobe University.
    10. Ryosuke Okazawa & Katsuya Takii, 2019. "Intergenerational Conflict Over Consumption Tax Hike: Evidence from Japan," OSIPP Discussion Paper 19E009, Osaka School of International Public Policy, Osaka University.

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    More about this item

    Keywords

    fiscal sustainability; public debt; primary deficit; economic growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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