Working Paper: NBER ID: w9367
Authors: Robert Dekle
Abstract: Japan's deteriorating fiscal situation has attracted international attention. I assess what current Japanese government policies mean for the future of public debt and the economy in general, given the inevitable aging of the population. I review how Japan got into this current fiscal mess, and then perform an analysis of some debt dynamics. With unchanged fiscal policies, Japan's public debt will rise to between 260% and 380% of GDP in 2030, and to between 700% and 1300% in 2040 -- clearly unsustainable levels. For the debt to be sustainable, significant increases in taxes, or cuts in government spending are necessary.
Keywords: Japan; Fiscal Policy; Public Debt; Aging Population
JEL Codes: E6; H5; H6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Aging Population (J11) | Increased Government Spending (H59) |
| Increased Government Spending (H59) | Rising Public Debt (H69) |
| Aging Population (J11) | Rising Public Debt (H69) |
| Fiscal Policies (H39) | Rising Public Debt (H69) |
| Tax Increases or Spending Cuts (E62) | Debt Sustainability (F34) |
| Rising Public Debt (H69) | Unsustainable Levels of Public Debt (H69) |