Fiscal Consolidation and Sustainability of Japan's Public Debt after the Global Financial Crisis

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After the 2008 global financial crisis, the sustainability of public indebtedness has become a central public policy issue in the United States, Europe, and Japan. In the United States especially, the public debt ceiling has become a continuing source of concern and political dispute. This paper employs Japanese Long-term Economic Statistics (LTES) to investigate the sustainability of Japan's public debt and changes in fiscal discipline after the 2008 global financial crisis.First, results of the unit-root test show that the level of Japan's public debt has become unsustainable after the crisis. Second, the 2008 global financial crisis has destroyed Japan's fiscal discipline, which had been relatively strong before the crisis. Third, fiscal discipline was strong between the Russo?Japanese War and World War I and for several decades following World War II. It was relatively strong during the fiscal consolidation period in the latter 1980s. We thus conclude that post-war fiscal discipline in Japan resembled the pre-war period despite the absence of military expenses after World War II. Although fiscal consolidation could reduce public debt to some degree, the level of public debt in 2017 might generate high inflation in the future, as it did after World Wars I and II.

Journal

  • 經營と經濟

    經營と經濟 99 (1-4), 183-201, 2020-02-25

    長崎大学経済学会

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