NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability

Christian Broda, David E. Weinstein

NBER Working Paper No. 10988
Issued in December 2004
NBER Program(s):   AG   ITI   PE

We analyze fiscal policy and fiscal sustainability in Japan using a variant of the methodology developed in Blanchard (1990). We find that Japan can achieve fiscal sustainability over a 100-year horizon with relatively small changes in the tax-to-GDP ratio. Our analysis differs from more pessimistic analyses in several dimensions. First, since Japanese net debt is only half that of gross debt, we demonstrate that the current debt burden is much lower than is typically reported. This means that monetization of the debt will have little impact on Japan's fiscal sustainability because Japan's problem is the level of future liabilities not current ones. Second, we argue that one obtains very different projections of social security burdens based on the standard assumption that Japan's population is on a trend towards extinction rather than transitioning to a new lower level. Third, we demonstrate that some modest cost containment of the growth rate of real per capita benefits, such as cutting expenditures for shrinking demographic categories, can dramatically lower the necessary tax burden. In sum, no scenario involves Japanese taxes rising above those in Europe today and many result in tax-to-GDP ratios comparable to those in the United States.

download in pdf format
   (382 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (382 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10988

Users who downloaded this paper also downloaded these:
Doi, Hoshi, and Okimoto w17305 Japanese Government Debt and Sustainability of Fiscal Policy
Dekle The Deteriorating Fiscal Situation and an Aging Population
Doi, Ihori, and Mitsui w12357 Sustainability, Debt Management, and Public Debt Policy in Japan
Broda and Weinstein w13255 Defining Price Stability in Japan: A View from America
Hoshi and Ito w18287 Defying Gravity: How Long Will Japanese Government Bond Prices Remain High?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us