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

M. Shirakawa

Financial Stability Review, 2012, issue 16, 169-181

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.

Date: 2012
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