Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective

Selahattin Imrohoroglu and Gary Hansen

No 697, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Past government spending in Japan is currently imposing a significant fiscal bur- den that is reflected in a net debt to GNP ratio above 100 percent. In addition, the aging of Japanese society implies that public expenditures and transfers payments relative to GNP are projected to continue to rise until at least 2050. In this paper we use a standard growth model to measure the size of this burden in the form of additional taxes required to meet these obligations that maintain current promised levels of per capita public pension and health services. The fiscal adjustment needed is about a 30 percentage point increase in taxes, using either the consumption tax rate or the labor income tax rate. The latter is far more distorting than the former, leading to a significant loss in welfare. Our results highlight the importance of containing the projected increases in public spending and exploring policies designed to enlarge the tax base.

Date: 2013
New Economics Papers: this item is included in nep-dge and nep-pbe
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Related works:
Journal Article: Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective (2016)
Working Paper: Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective (2013)
Working Paper: Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:697

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