As stock prices are booming and the yen is depreciating due to the monetary easing in the Abenomics policy, interest in the mechanism of persistent deflation is now renewed. On the other hand, fiscal expansion is now further accelerating the accumulation of public debt. Economic and policy analysis on public debt accumulation and persistent deflation in Japan in the long-run are very challenging topics as they are not easily accounted for by the existing economic theory. We first analyze the relation between the expansion of public debt and the decrease in economic growth. Analysis is done using political economic models in the form of Acemoglu et al. and macroeconomic models with credit constraint, in which the Ricardian equivalence is violated and capital accumulation is affected by the public debt. Based on these theoretical analyses, we argue for the interaction of public debt, economic growth, and deflation, and derive some policy implications.
April 1, 2013 - March 31, 2015