| Author Name | KOBAYASHI Keiichiro (Senior Fellow, RIETI) |
|---|---|
| Creation Date/NO. | March 2013 13-P-004 |
| Research Project | Research on Macroeconomic Policies Focused on Fiscal Reconstruction and Similar Measures |
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Abstract
Japan's public debt is increasing exponentially, and it is a primary policy objective to restore its sustainability. In this paper, I survey the existing research on the sustainability of the public debt in Japan and find that it might be necessary either to increase the consumption tax rate by 30% or implement a systematic fiscal consolidation plan lasting more than 100 years. Furthermore, I survey the research on the "public debt overhang," which shows that the economic growth rate decreases by about 1% if the public debt exceeds 90% of the gross domestic product (GDP). I also examine theoretical explanations of the public debt overhang. These findings indicate that restoring the sustainability of the public debt can enhance long-term economic growth.
