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Sustainability of public debt: evidence from Japan before the Second World War 1
Author(s) -
SHIZUME MASATO
Publication year - 2011
Publication title -
the economic history review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.014
H-Index - 49
eISSN - 1468-0289
pISSN - 0013-0117
DOI - 10.1111/j.1468-0289.2010.00565.x
Subject(s) - debt , veto , fiscal sustainability , default , internal debt , sustainability , debt levels and flows , economics , debt to gdp ratio , fiscal policy , public finance , recourse debt , political science , economic policy , macroeconomics , finance , ecology , politics , biology , law
Japan defaulted on its public debt after the Second World War. This article addresses the question of how Japan lost its ability to sustain its public debt. We explore the sustainability of public debt in Japan before the War. We conduct statistical tests for the relationship between public debt and primary fiscal balance, and find that Japanese public debt was sustainable until 1931, and unsustainable in and after 1932. Narrative modes of analysis indicate that Japan lost its fiscal discipline because of the military's effective veto over budgetary processes and because of the absence of pressure for sound fiscal policy from international financial markets.