Will a Growth Miracle Reduce Debt in Japan?

Selahattin Imrohoroglu and Nao Sudo

No 11-E-01, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Japan has the highest debt to GDP ratio among the developed nations. In addition, the population is projected to age rapidly over the next few decades, which will significantly increase the ratio of government expenditures to GDP. In this paper, we explore the effect of economic growth driven by total factor productivity on Japanese debt in the face of higher future social security expenditures. Our main finding is that a decade of unprecedentedly fast growth of total factor productivity, at an average of 6% per year, is needed in order for Japan to eliminate its debt. Since this is very unrealistic, what is needed is a significant reduction in government expenditures together with an increase in the consumption tax rate, to eliminate debt in forty years.

Keywords: Government Debt; Productivity; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E00 H20 H50 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:11-e-01

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