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Strategies for Fiscal Consolidation in Japan
Author:
Mr. Dennis P Botman
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Mr. Papa M N'Diaye
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Ms. Hali J Edison
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Series:
IMF Working Papers
Volume/Issue:
Volume 2007: Issue 037
Language:
English
Publication Date:
01 Feb 2007
DOI:
https://doi.org/10.5089/9781451866018.001
ISBN:
9781451866018
ISSN:
1018-5941
Pages:
22
Keywords:
WP; GDP; debt ratio; interest rate; consumer
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Japan's key fiscal challenge is to put public finances on a more sustainable footing. This paper investigates the macroeconomic implications of alternative fiscal strategies for Japan using the IMF's Global Fiscal Model. The results suggest that: (i) an adjustment package that achieves primary balance through lower social transfers and government spending and a higher VAT is the most viable option and has a smaller negative impact on growth than other fiscal measures; (ii) achieving primary balance is not sufficient to stabilize the net debt ratio; (iii) prefunding future aging costs provides greater long-term benefits compared with less front-loaded strategies; (iv) tax reform involving shifting from corporate taxation to consumption taxation could mitigate the short-term output losses associated with fiscal consolidation; and (v) the spillovers to the rest of the world from consolidation in Japan are positive in the medium term, but modest.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund