TY  - JOUR
AU  - Broda,Christian
AU  - Weinstein,David E.
TI  - Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10988
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w10988
L1  - http://www.nber.org/papers/w10988.pdf
N1  - Author contact info:
Christian Broda
40 W 57th street
Floor 25th
New York, NY 10019
Tel: 917-214-0301
E-Mail: broda@duquesne.com

David Weinstein
Columbia University, Department of Economics
420 W. 118th Street
MC 3308
New York, NY  10027
Tel: 212/854-6880
Fax: 212/854-8059
E-Mail: dew35@columbia.edu
AB  - 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.
ER  -