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Ikuo Saito worked formerly at the International Monetary Fund. The author is grateful to Luc Everaert and Dennis Botman for guidance and suggestions, Silvia Sgherri for help with the estimation, and Seble Abebe for editorial assistance. Any remaining errors are my own.
IMF (2016) estimates that Japan’s potential growth will decline from the current 0.5 percent to 0.1 percent by 2030.
The fiscal deficit is expected to continue declining from 6.2 percent of GDP in 2014 if the government continues its effort towards the FY2020 primary surplus goal, but the net debt ratio is expected to be stable for the next few years and then start rising (IMF, 2016).
Although the multiplier for the full sample is not high, the permanent income hypothesis also implies that a temporary cash transfer is not immediately used up.
The larger economic slowdown after the global financial crisis may have contributed to a higher multiplier.
0.11 and 0.095 when assuming a real interest rate of 4 percent and 0 percent, respectively. Both are statistically significant at the 1 percent level. The average real interest rate for 1981–2014 was 1.5 percent.
According to government estimates, 13. 4 percent of workers are employed at close to the minimum wage (less than 15 percent more than the minimum wage) in 2014, up from 9.2 percent in 2009.
The ratio of the number of people on public assistance to the total population in each cohort is regressed on its lagged value, the non-regular worker ratio, and the job-to-applicant ratio.
The number of people on public assistance in 2030 is calculated using the estimation result of the regression explained in the footnote 9.
As mentioned above, fiscal multipliers could vary depending on cyclical positions and monetary policy responses. However, this section focuses on structural multipliers (i.e., average ones over economic cycles).
Nakamura et al. (2016), as a BoJ Reports & Research Paper, proposes a new timely consumption indicator “Consumption Activity Index” as preliminary quarterly estimates of private consumption (national accounts) are not very reliable, while annual reports on national accounts have a lag of almost one year.
The planning horizon of 10 years is more consistent with the discount wedge in Japan estimated above than the typical value of 20 years for advanced economies assumed in GIMF, while a 6-year planning horizon assumes a trend increase in the discount wedge.