5

According to this article, Japan reached an enormous debt/GDP ratio of about 250%.

The first two answers from here illustrate more about the structure of the debt. My highlights are:

  • most Japanese Government Bonds (about 90%) are held by citizens of Japan
  • much of that debt is owed by one branch of the government to another, net debt held by the public is only 134 percent of gross domestic product, not the widely quoted figure of 240 percent.
  • it has a tax rate of just 35% of GDP, so it could in theory raise taxes by another 10% to pay off debt if it did become a problem

Question: since the tax rate is fairly low and a significant part of its debt is owned by its population, why not raise tax rates instead of borrowing from population?

  • 2
    Why not borrow from its population instead of raising taxes? – Peter Aug 18 '17 at 20:03
  • 1
    @Peter - Because massive debts seems to be very problematic, especially when the population is aging and the economical growth is not exactly as expected. – Alexei Aug 18 '17 at 20:10
  • 2
    Massive tax also seems to be very problematic. And Japans debt seems to not be problematic. Anyway, it was supposed to be a rhetorical question serving as the seed of an answer. – Peter Aug 18 '17 at 20:18
  • 2
    @Alexei I read that article as being slightly debt favorable and indicating the Japanese are raising taxes to reduce their debt. Perhaps you can clarify your point. – user9389 Aug 18 '17 at 20:19
  • 1
    Yes, Wikipedia article is not great. However, one paragraph from an answer on Quora seems to make sense: As the Japanese populace ages, people are going to start withdrawing from these funds making it increasingly difficult to finance the debt within the country. [...] the savings rate for younger people in Japan is also falling indicating that the fewer younger people in Japan will also not be contributing as much per person [...] Japan will have to venture out into the broader world in order to roll over it's massive debt. . Of course, these are problems on the long term. – Alexei Aug 18 '17 at 20:39
5

Because it has served Japan well and now is not the moment to reduce debt macro-economically speaking. You often hear that a large debt ought to be a major problem and reducing it should be the number one priority but Japan is in fact a great counter-example.

That's not to say Japan should not worry about it at all nor eventually reduce the size of the debt relative to the GDP. And what it needs to do that is inflation, not tax hikes. But, all in all, there is no sign of impending catastrophe and Japan has actually been doing better than countries who engaged in aggressive austerity shortly after the 2008 crisis.

1

    Debt is dangerous when all/majority of your creditors could ask for repayment at once. In Japan's case, 70% of debt is purchased by Bank of Japan, which actually amounts to stealth money printing (i.e. inflation tax on population, and people holding yen abroad) . Out of remaining 30% , lot is in the hands of Japanese banks and trust funds, which are also not likely to start major selloff of bonds. So, situation is quite stable for now.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.