Fiscal Sustainability in Japan

Shiro Armstrong and Tatsuyoshi Okimoto
Authors registered in the RePEc Author Service: Tatsuyoshi Okimoto and Shiro Patrick Armstrong

Asia and the Pacific Policy Studies from Crawford School of Public Policy, The Australian National University

Abstract: Japanese government debt is at unprecedented levels with a gross debt to gross domestic product ratio of over 230 per cent and a net debt to gross domestic product ratio of 150 per cent. There are three big challenges to fiscal sustainability: the huge amount of government bonds outstanding; continued budget deficits; and the growing age-related spending. The debt is sustainable as long as the market as a whole believes it is. The path to fiscal consolidation requires increasing the tax rate, reducing spending, broadening the tax base and growing the economy out of trouble. The longer the delay before moving to a more sustainable consolidation path, the larger the risks and closer Japan moves towards a financial crisis. The policy goal is to keep government debt sustainable, not to repay it all. Just as Japan has done since the burst of the asset bubble in the early 1990s, there is every likelihood that the Japanese economy will muddle through.

Keywords: intergenerational; fiscal policy; Japan; tax policy; Japanese government bonds (search for similar items in EconPapers)
Pages: 9 pages
Date: 2016-07-01
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (4)

Published in Asia & the Pacific Policy Studies, May 2016, pages 235-243

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Journal Article: Fiscal Sustainability in Japan (2016)
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