TY - JOUR
T1 - Fiscal Sustainability of Japan
T2 - A Dynamic Stochastic General Equilibrium Approach
AU - Sakuragawa, Masaya
AU - Hosono, Kaoru
N1 - Funding Information:
We thank two anonymous referees, Yasushi Iwamoto, Toshihiro Ihori, Takatoshi Ito, Akira Okamoto, Masao Ogaki, Etsuro Shioji, Makoto Saito, Toru Nakazato, Tomoaki Yamada, Tsutomu Watanabe and seminar participants at the 9th Macroeconomics Conference, Hitotsubashi University, Fiscal Studies Group at the Institute of Statistical Research for their valuable comments. Sakuragawa thanks Kikawada Foundation for financial support. Remaining errors are ours.
Publisher Copyright:
© 2009, Japanese Economic Association.
PY - 2010/12/1
Y1 - 2010/12/1
N2 - The purpose of this paper is to investigate the fiscal sustainability of Japan by applying a dynamic stochastic general equilibrium model to the Japanese economy. By introducing intermediation costs into the model, we succeed in explaining the observed relationship between the interest and GDP growth rates, which is crucial in testing for sustainability. When the projected real growth rate is 2.5%, the average real interest rate becomes 2.57%, and the debt-to-GDP ratio gradually increases stochastically so that government debt is not sustainable. To recover sustainability, the primary surplus must be 0.2% of GDP.
AB - The purpose of this paper is to investigate the fiscal sustainability of Japan by applying a dynamic stochastic general equilibrium model to the Japanese economy. By introducing intermediation costs into the model, we succeed in explaining the observed relationship between the interest and GDP growth rates, which is crucial in testing for sustainability. When the projected real growth rate is 2.5%, the average real interest rate becomes 2.57%, and the debt-to-GDP ratio gradually increases stochastically so that government debt is not sustainable. To recover sustainability, the primary surplus must be 0.2% of GDP.
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U2 - 10.1111/j.1468-5876.2009.00503.x
DO - 10.1111/j.1468-5876.2009.00503.x
M3 - Article
AN - SCOPUS:82955231421
SN - 1352-4739
VL - 61
SP - 517
EP - 537
JO - Japanese Economic Review
JF - Japanese Economic Review
IS - 4
ER -