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    Fiscal Policy Conditions for Government Budget Stability and Economic Recovery: Comparative Analysis of Japan and Greece

    Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Mizoguchi, Tetsuro | July 2018
    Abstract
    In the literature regarding fiscal sustainability, the Domar condition and Bohn’s condition are often used to check whether a government’s debt situation is in a dangerous zone. This paper first shows that the Domar condition is obtained only from the government budget constraint (namely the supply of government bonds) and does not take into account the demand for government bonds. Second, this paper reveals that Bohn’s condition does not satisfy the condition of economic stability: even if this is satisfied, economic recovery may not be achieved. This paper will propose a new condition that satisfies both the stability of the government budget and the recovery of the economy. The paper’s empirical findings from Japan demonstrate that in order to achieve fiscal sustainability, both sides of the Japanese government budget (expenditure and revenue) must be simultaneously adjusted while the decline in government expenditure has to exceed the increase in tax revenue. In addition, the paper provides a comparative analysis of Japan and Greece as evidence of the aforementioned condition, and proves that although Japan’s debt-to-GDP ratio is higher than that of Greece, its bond market remains stable. This is because it comes from the demand side of the market and investors have greater confidence in this economy due to its lower credit risk rooted in the country’s macroeconomic strength and more auspicious economic future.
    Citation
    Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Mizoguchi, Tetsuro. 2018. Fiscal Policy Conditions for Government Budget Stability and Economic Recovery: Comparative Analysis of Japan and Greece. © Asian Development Bank Institute. http://hdl.handle.net/11540/8457.
    Keywords
    Regional Development Finance
    Public Scrutiny of City Finances
    Non-Bank Financial Institutions
    Local Government Finance
    Government Financial Institutions
    Foreign and Domestic Financing
    Financial Risk Management
    Assessing Corporate Governance
    Good Governance
    Governance Approach
    Urban Development Finance
    Trade Finance
    Small Business Finance
    Rural Finance
    Roundtable on International Trade and Finance
    Regional Development Finance
    Finance
    Public Finance
    Governance
    National Budget
    Budgetary Policy
    Educational Budget
    Public Financial Management
    Financial System
    Financial Statistics
    Public Accounting
    Business Financing
    Subsidies
    Social Equity
    Economic Equity
    Project Risks
    Project Impact
    Public Administration
    Corporations
    Taxation
    Public Debt
    Local Government
    Debt Management
    Taxation
    Public Accounting
    National Budget
    Municipal Bonds
    Local Government
    Local Taxes
    International Monetary Relations
    International Financial Market
    International Banking
    Central Banks
    Business Financing
    Financial Aspects
    Taxation
    Public Debt
    Local Government
    Debt Management
    Pension Funds
    Mutual Funds
    Social Equity
    Financial Aspects
    Fiscal Policy
    Investment Requirements
    Banks
    |Taxing power
    Tax administration and procedure
    Tax policy
    Effect of taxation on labor supply
    Decentralization in government
    Community power
    Corporate divestment
    Civil government
    Delegation of powers
    Equality
    Neighborhood government
    Subnational governments
    Delivery of government services
    Local taxation
    Options
    Government
    Local government
    Taxation
    Grants
    Loans
    Use tax
    Taxing power
    State of taxation
    Tax-sales
    Tax revenue estimating
    Tax planning
    Spendings tax
    Special assessments
    Tax administration and procedure
    Sales tax
    Real property and taxation
    Progressive taxation
    Effect of taxation on land use
    Effect of taxation on labor supply
    Intergovernmental tax relations
    Local taxation
    Options
    Government
    Local government
    Taxation
    Employee pension trusts
    Investment management
    Investments
    Multiemployer pension plans
    Keogh plans
    Individual retirement accounts
    Pension plans
    Employee pension trusts
    Pension trusts
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    Citable URI
    http://hdl.handle.net/11540/8457
    Metadata
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    Author
    Yoshino, Naoyuki
    Taghizadeh-Hesary, Farhad
    Mizoguchi, Tetsuro
    Theme
    Finance
    Governance
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise