Comment on “Is Abe's Fiscal Policy Ricardian? What Does the Fiscal Theory of Prices Mean for Japan?”

• Date: 01 January 2018
• DOI: http://doi.org/10.1111/aepr.12200
• Author: Chalongphob Sussangkarn
• Published date: 01 January 2018

Comment on “Is Abe’s Fiscal Policy

Ricardian? What Does the Fiscal Theory of

Prices Mean for Japan?”

Chalongphob SUSSANGKARN†

Thailand Development Research Institute

JEL codes: E62, E63, H62, H63

Accepted: 25 July 2017

Japan has by far the largest public debt/gross domestic product (GDP) ratio of any

country in the world. At the end of 2016, Japan’s public debt/GDP ratio was about

250%, far exceeding the ratio of the next highest country, Greece, whose ratio was

about 177%. What is worrying is that countries that had gone through severe fiscal cri-

ses, like Greece, had much lower public debt/GDP ratios than Japan. So, is Japan’s

public debt sustainable? This is obviously a very important question.

The most substantive part of Doi (2018) addresses this issue of Japan’s public debt

sustainability by applying to Japan the methodology of the “Fiscal Stance Index”(FSI),

developed by Polito and Wickens. My comments will focus mainly on this part of

Doi (2018).

As Doi states, the “FSI is based on a comparison of the desired debt-GDP ratio in

the future with a forecast of its value if fiscal stance at that time would continue to

maintain.”Estimates of VAR models are used to derive forecasts of the key variables

determining the trend of the debt/GDP ratio. If the computed FSI is greater than or

equal to one, then the targeted debt/GDP ratio can be attained and fiscal sustainability

is ensured. However, if the FSI is less than one, the debt/GDP ratio will exceed the tar-

get and fiscal sustainability is not ensured. Doi assumes that the target debt-GDP ratio

is equal to its current value. So in simple terms, the question being asked is whether

Japan’s debt/GDP ratio is expected to be on a declining or rising trend, if it is the for-

mer then the fiscal stance is sustainable, otherwise it is non-sustainable.

The analyses are carried out for three main cases. The first case does not take into

account the Quantitative and Qualitative Monetary Easing (QQE) by the Bank of

Japan (BOJ), so that Japanese government bonds (JGBs) bought by the BOJ are still

considered part of the public debt and the seigniorage income from printing money is

not included in government revenue. The second case excludes the JGB’s bought by

†Correspondence: Chalongphob Sussangkarn, Thailand Development Research Institute, 565 Soi

Ramkhamhaeng 39,WangthonglangDistrict, Bangkok 10310, Thailand.

Email: chalongp@tdri.or.th

64 © 2018 Japan Center for Economic Research

doi: 10.1111/aepr.12200 Asian Economic Policy Review (2018) 13, 64–65