The Optimum Quantity of Debt for Japan

Tomoyuki Nakajima and Shuhei Takahashi

No 17-009E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: Japan's net government debt is 130% of GDP in 2013. The present paper analyzes the effect of the large government debt on welfare. We use a heterogeneous-agent, incomplete-market model with idiosyncratic wage risk, a borrowing constraint, and endogenous labor supply. We calibrate the model to the Japanese economy using evidence based on macro-level and micro-level data. We find that the optimal level of government debt is -50% of GDP for Japan. The welfare cost of keeping government debt to 130% of GDP rather than the optimal level is 0.19% of consumption.

Pages: 29
Date: 2017-10
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (12)

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Journal Article: The optimum quantity of debt for Japan (2017)
Working Paper: The Optimum Quantity of Debt for Japan (2017)
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