Open AccessFiscal Sustainability in Japan
Author(s) -
Armstrong Shiro,
Okimoto Tatsuyoshi
Publication year - 2016
Publication title -
asia and the pacific policy studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 14
ISSN - 2050-2680
DOI - 10.1002/app5.133
Subject(s) - gross domestic product , debt , economics , fiscal sustainability , consolidation (business) , debt ratio , fiscal policy , monetary economics , sustainability , economic policy , government debt , government spending , asset (computer security) , business , finance , macroeconomics , market economy , ecology , computer security , biology , computer science , welfare
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.