Dynamic analysis of budget policy rules in Japan

Abstract

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The pace of fiscal consolidations, fiscal sustainability, and welfare: An overlapping generations approach

“…For later use, we notify the properties of x t = Ω(q(k t )) (g t = 0 locus expressed by (q(k t ), x t ): see (17)). This together with (23) and (24) yield the following facts. First, at the point…”

“…(ii) In the intersection point between b t+1 = b t and g t = 0 loci, bq(k t ) = Ω(k t ) holds by ( 17) and (23). Therefore, we have…”

“…Fiscal consolidation is shown to be productive in the medium and long term in the literature of exogenous growth models. Some studies (e.g., Coenen et Futagami and Konishi (2018). These studies consider a debt policy rule in line with the SGP's 60% rule of the debt-to-GDP ratio for welfare analyses of fiscal consolidations, and show that a faster pace of consolidation drives larger welfare gains.…”

“…See Appendix G for the derivation of Condition 3. Since values of (τ c , δ, λ, α, β) in countries where δ > 1 (the UK and Denmark in the EU 14 countries 23 , Japan, and the US) satisfy Condition 3, we impose it in this study. 24 25 Let us summarize the facts on the ceiling of b as follows.…”

“…22 1 ≥ (1 + τ c )β is satisfied under 0 < τ c ≤ 1 and β = 0.973 30 . 23 See Trabandt and Uhlig (2011). 24 (τ c , α) = (0.16, 0.36) in the UK while (τ c , α) = (0.35, 0.40) in Denmark (see Trabandt and Uhlig, 2011).…”