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The author would like to thank Papa N’Diaye and Dirk Muir for their invaluable comments.
See Japan staff report for the 2010 Article IV Consultation, IMF Country Report no. 10/211, July 2010.
The tax reform package included an increase of the value added tax (VAT) rate from 16 to 19 percent, a reduction in payroll tax relief equivalent to 0.4 percent of GDP, and a reduction in the corporate income tax rate from 40 to 31 percent combined with some base broadening. Plans were announced in November 2005, and the increase of the VAT rate and the reduction in corporate income tax rate were implemented in 2007 and 2008 respectively. The structural fiscal deficit declined by 1 percentage point in 2007 helped by expenditure reductions, which were carried out in parallel.
The five regions are the U.S., the Euro Area, Japan, emerging Asia and other countries.
The model uses the Organization for Economic Cooperation and Development (OECD) estimates for dgdp (Girouard and André, 2005).
Including public debt owed by the Fiscal Investment and Loan Program.
Given that most tail risk scenarios feature 100–200 basis points increase in risk premium, this is quite a mild assumption.
This scenario is consistent with the rebalancing scenario analyzed in Chapter 3 of the Asia and Pacific Department’s Regional Economic Outlook, April 2010.
Higher national savings in the U.S., in the absence of any other changes in the rest of the world, would imply a higher current account and real effective depreciation of the US dollar.