The paper 'Fiscal Policy Switching in Japan' is a perfect example of a Macro and Microeconomics Case Study. According to researchers, Japan has the utmost debt to GDP ratio accounting for the developed countries. Additionally, its population has been projected over the years to age hastily, and over the next few decades, it will greatly increase the ratio of government expenditures to GDP. The paper will explore the effects of the country’ s economic growth driven by the total factor productivity on the Japanese debt in the face of higher future social security and among the businesses.
It will also examine the sustainability of Japan’ s fiscal policy and situations where the debt-to-GDP will be unsustainable. The findings using The Standard Neoclassical Growth Model is that a decade of the rapid growth of the total factor of production, using an average of 6% pa annum might help the country eradicate the debt issue. This means that the country’ s policymakers should focus on Japan’ s growth, for instance inducing policies such as minimal distorting taxation and structural reforms that incentivize the entrepreneurial activities and innovation that will drive growth.
In this case, the paper will highlight some of the future steps Japan should do to reduce the increasing debt-to-GDP Japanese Debt-to-GDP Ratio Debt-to- gross domestic product ratio is defined to be a country’ s debts, which are divided by the size of its economy. In this case, the ratio can measure and incorporate all debts that are government, corporate, personal, in a country. According to economists, the ratio is viewed as the signal that indicates if a country is on its financial stability, in addition, whether the debt burden is reaching dangerous levels (Ito, Tsutomu, & , Tomoyoshi 2011, p. 2-5).
Generally, the lower the debt-to-GDP ratio, the healthier a country's fiscal outlook is, and the vice versa is true. Additionally, mounting a country’ s debt is usually a serious issue in several countries in the U. S, Europe, and Japan. The main concern here is on the sustainability of the increasing government debt, for instance, that already put Greece into a crisis where other European countries had to bail it out twice. Other countries, such as Italy, Spain, Ireland, and Portugal, have had seriously increased debts and alleviating economic growth, but over the years they have been able to control the issue by sharing the deficit reduction (Ito, Tsutomu, & , Tomoyoshi 2011, p. 2-5). However, Japan has one of the worst-case scenarios and suffers a severe problem, which is government debt, which is evident after analyzing its gross debt to GDP ratio.
According to the 2010 statistics, Japan’ s debt to its GDP ratio had risen to 198% that higher than the France 92%, U.S 93%, Greece 129%, and Germany 80%. According to research, Japan’ s problems are because of the continuous accumulation of deficits of several years compared to Europe or the U. S (Nersisyan, & Wray 2013, p.
5-10). The problem comes back to the fiscal stimulus packages in the year 1990 when its economy suffered a collapse of assets prices, despite their continued efforts to mend that, they have not been in a position to achieve their initial objects, thus resulting to debt increase over the years. According to reports, the government has been leaning on Japan’ s, to buy bonds, a strategy that seem not to be working out well recently.
The country’ s long-term yields in bonds have been falling this is because the banks are reddened with cash putting the economy to a grip of chronic deflation (Nersisyan, & Wray 2013, p. 10).
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