Rising rates are testing Japan’s fiscal framework, with debt dynamics hinging on growth and pointing to the need for adjustment and a fiscal council.
Japan combines the highest public debt ratio among advanced economies with a fiscal framework that has struggled to anchor fiscal policy. As monetary policy normalises and interest rates rise, concerns about debt sustainability have intensified. We assess Japan’s debt dynamics using stochastic debt sustainability analysis, and examine the institutional foundations of its fiscal framework. We show that debt outcomes are highly sensitive to growth assumptions. Under plausible baseline scenarios, debt does not stabilise without sustained primary surpluses and even optimistic growth assumptions require fiscal adjustment relative to the current structural primary balance. Japan’s challenge is institutional as well as economic: weak enforcement of fiscal rules and the absence of independent oversight undermine credibility. Strengthening fiscal institutions, particularly through an independent fiscal council, could support debt stabilisation.
Source : Bruegel
The redirection of Chinese exports away from the US has fuelled concerns about its spillovers…
The European Commission is simplifying the rules around the EU energy label. This column uses…
Service value chains are expanding faster than industrial ones, yet their geography is strikingly different:…
How households’ inflation expectations affect their spending is a central question for researchers and policymakers…
An anticipatory framework for the European Union to manage climate risks should lead to better…
Military planners need to work more closely with economists to better understand resource management and…