
Contents
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11.1 Introduction 11.1 Introduction
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11.2 Sustainability Issues and Emergency Reform 11.2 Sustainability Issues and Emergency Reform
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11.2.1 Concerns about Sustainability 11.2.1 Concerns about Sustainability
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11.2.2 Non-Keynesian Effect 11.2.2 Non-Keynesian Effect
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11.2.3 Emergency Reform for Debt Repudiation 11.2.3 Emergency Reform for Debt Repudiation
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11.2.4 Literature on Debt Ponzi Games Under Uncertainty 11.2.4 Literature on Debt Ponzi Games Under Uncertainty
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11.2.5 Remarks 11.2.5 Remarks
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11.3 Debt Management Policy of the Japanese Government 11.3 Debt Management Policy of the Japanese Government
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11.3.1 Japan's Government Bonds 11.3.1 Japan's Government Bonds
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11.3.2 Theoretical Analysis of Debt Management Policy 11.3.2 Theoretical Analysis of Debt Management Policy
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11.3.3 Second Best Solution 11.3.3 Second Best Solution
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11.3.4 Numerical Analysis 11.3.4 Numerical Analysis
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11.4 Debt Management and Fiscal Sustainability 11.4 Debt Management and Fiscal Sustainability
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11.4.1 Default of the Government Bonds 11.4.1 Default of the Government Bonds
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11.4.2 Policy Choice in the Second Period 11.4.2 Policy Choice in the Second Period
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The Normal Case The Normal Case
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The Case of Default The Case of Default
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11.4.3 Policy Choice in the First Period 11.4.3 Policy Choice in the First Period
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The Normal Case Under No Confidence Crisis (Case N) The Normal Case Under No Confidence Crisis (Case N)
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The Case of Default Under Confidence Crisis (Case D) The Case of Default Under Confidence Crisis (Case D)
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Welfare Comparison between Case N and Case D Welfare Comparison between Case N and Case D
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11.4.4 Numerical Analysis 11.4.4 Numerical Analysis
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11.4.5 Intuitions of the Analysis and Policy Implications 11.4.5 Intuitions of the Analysis and Policy Implications
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11.5 Conclusion 11.5 Conclusion
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Appendix Numerical Analysis in a Realistic Case Appendix Numerical Analysis in a Realistic Case
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The Normal Case in the Final Period The Normal Case in the Final Period
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Policy Choice in Period T − 1 Policy Choice in Period T − 1
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The Normal Case (Case N) The Normal Case (Case N)
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The Case of Default in the Final Period Under Confidence Crisis (Case C) The Case of Default in the Final Period Under Confidence Crisis (Case C)
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The Case of Default in Period T − 1 Under Confidence Crisis (Case D) The Case of Default in Period T − 1 Under Confidence Crisis (Case D)
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Welfare Comparison Between Case C and Case D Welfare Comparison Between Case C and Case D
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Welfare Comparison Between Case N and Case C or Case D Welfare Comparison Between Case N and Case C or Case D
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Policy Choice in Period t Policy Choice in Period t
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The Normal Case (Case N) The Normal Case (Case N)
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The Case of Default Under Confidence Crisis The Case of Default Under Confidence Crisis
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Reference Reference
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Comment Comment
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References References
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11 Sustainability, Debt Management, and Public Debt Policy in Japan
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Published:November 2007
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Abstract
The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated rapidly with the collapse of the bubble economy in the early 1990s and the deep and prolonged period of economic recession that ensued. Since national income did not grow much, tax revenue did not increase either. On the contrary, government spending has been gradually raised due to political pressures of interest groups, resulting in large budget deficits. This chapter examines sustainability issues of Japan's fiscal policy and discusses the country's debt management policy using theoretical models and numerical studies. It also investigates the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction, first reviewing previous studies on sustainability issues and then evaluating Japan's debt management policy. The chapter concludes by investigating confidence crisis of government debt and spontaneous default of fiscal authority.
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