Fiscal Sustainability in Japan

Asia & the Pacific Policy Studies, Volume 3, Issue 2, pages 235-243, May 2016

Crawford School of Public Policy, The Australian National University

9 Pages Posted: 13 Jul 2016

See all articles by Shiro Patrick Armstrong

Shiro Patrick Armstrong

Australian National University (ANU) - Crawford School of Public Policy

Tatsuyoshi Okimoto

Australian National University

Multiple version iconThere are 2 versions of this paper

Date Written: June 11, 2016

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

Suggested Citation

Armstrong, Shiro Patrick and Okimoto, Tatsuyoshi, Fiscal Sustainability in Japan (June 11, 2016). Asia & the Pacific Policy Studies, Volume 3, Issue 2, pages 235-243, May 2016, Crawford School of Public Policy, The Australian National University, Available at SSRN: https://ssrn.com/abstract=2808843

Shiro Patrick Armstrong (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://www.crawford.anu.edu.au/staff/sarmstrong.php

Tatsuyoshi Okimoto

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

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