Demographic Change, Government Debt and Fiscal Sustainability in Japan: The Impact of Bond Purchase by the Bank of Japan

Gary Hansen and Selahattin Imrohoroglu

Review of Economic Dynamics, 2023, vol. 50, 88-105

Abstract: We reconsider the fiscal consequences of an aging population in Japan that were reported in Hansen and Ä°mrohoroÄŸlu (2016). That paper predicted that the net debt to GNP ratio would reach 250 percent in 2021, while the actual net debt to GNP ratio was roughly constant at about 120% from 2011 to 2019. Here we study the role played by higher tax revenues, lower spending, and lower interest rates than were assumed in the previous paper. Most importantly, we consider the role played by Japanese government bonds held by the Bank of Japan in enabling this period of debt stability. We conclude that the stable net debt to output ratio is predicted to be temporary and reach 250 percent before 2040. (Copyright: Elsevier)

Keywords: Aging; fiscal policy; debt stabilization; general equilibrium growth model (search for similar items in EconPapers)
JEL-codes: E62 E63 H6 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.red.2023.07.007

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