Government fiscal projection and debt sustainability

Masaya Sakuragawa and Yukie Sakuragawa

Japan and the World Economy, 2020, vol. 54, issue C

Abstract: This paper reconsiders Japan’s fiscal sustainability. We investigate whether a simulation conducted under the political constraint imposed by a fiscal reaction function supports the official projection. First, we obtain Japan’s fiscal reaction function by estimating the response of the primary surpluses to the past debt for a panel data set of 23 OECD countries. Next, we investigate the political feasibility of the official projection using our estimated reaction function. When the Cabinet Office criterion is used for the debt-to-GDP ratio, the government can attain the policy target of nonnegative fiscal surpluses and realize fiscal sustainability. Notably, the negative growth-adjusted bond yield and the high growth rate contribute to this finding.

Keywords: Government debt; Primary surpluses; Sustainability; Fiscal projection (search for similar items in EconPapers)
JEL-codes: H63 H68 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:54:y:2020:i:c:s0922142520300116

DOI: 10.1016/j.japwor.2020.101010

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