Will a Growth Miracle Reduce Debt in Japan?

This is the title of a new paper by Selahattin Imrohoroglu and Nao Sudo.

Japan had high debt levels even before the crisis nad has further risen after the crisis. What will it mean to lower the debt levels? Can a positive shock reduce these levels:

Our main finding is that a decade of unprecedentedly fast growth of total factor productivity, at an average of 6%  per year, is needed in order for Japan to eliminate its debt. Since this is very unrealistic, what is needed is a significant reduction in government expenditures together with an increase in the consumption tax rate, to eliminate debt in forty years.

The authors look at three scenarios and all three look really difficult to implement. Japanese have a lot of thinking to do to lower their debt levels with a rapidly ageing population.


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