Chapter

The Deteriorating Fiscal Situation and an Aging Population

Robert Dekle

in Structural Impediments to Growth in Japan

Published by University of Chicago Press

Published in print November 2003 | ISBN: 9780226060217
Published online February 2013 | e-ISBN: 9780226060231 | DOI: http://dx.doi.org/10.7208/chicago/9780226060231.003.0004
The Deteriorating Fiscal Situation and an Aging Population

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This chapter examines the impact of current Japanese government fiscal policies on the future of public debt and the economy in general, given the inevitable aging of the population. It begins with a review of how Japan got into its current fiscal mess during the 1990s. This is followed by an analysis of debt dynamics. Next, the government's fiscal agendas are briefly discussed. The results of a simulation exercise that explicitly incorporates the effects of an aging Japanese population are then presented. The simulation shows that, apart from cuts in government spending, for the government debt to be sustainable taxes would need to increase from the current 28 percent of GDP to over 40 percent by 2020. The tax increases and the inevitable aging of the population are expected to sharply reduce household saving rates. As the labor force declines and the need to equip workers with capital decreases, corporate investment rates also are expected to fall.

Keywords: Japanese economy; fiscal policies; economic policies; public debt; taxation; tax increase; household savings; corporate investments

Chapter.  6652 words.  Illustrated.

Subjects: Business and Management

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