TY  - JOUR
AU  - Doi, Takero
AU  - Ihori, Toshihiro
AU  - Mitsui, Kiyoshi
TI  - Sustainability, Debt Management, and Public Debt Policy in Japan
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12357
PY  - 2006
Y2  - July 2006
DO  - 10.3386/w12357
UR  - http://www.nber.org/papers/w12357
L1  - http://www.nber.org/papers/w12357.pdf
N1  - Author contact info:
Takero Doi
Faculty of Economics
Keio University
Mita 2-15-45, Minato-ku
Tokyo 108-8345
JAPAN
Tel: +81-3-3453-4511
Fax: +81-3-5427-1578
E-Mail: tdoi@econ.keio.ac.jp

Toshihiro Ihori
National Graduate Institute for Policy Studies
7-22-1 Roppongi
Minato-ku, Tokyo 106-8677, JAPAN
Tel: 81364396171
Fax: 81364396010
E-Mail: ihori@grips.ac.jp

Kiyoshi Mitsui
Department of Economics
Gakushuin University
1-5-1 Mejiro, Toshima-ku
Tokyo 171-8588 JAPAN
E-Mail: kiyoshi.mitsui@gakushuin.ac.jp
M1  - published as Takero Doi, Toshihiro Ihori, Kiyoshi Mitsui. "Sustainability, Debt Management, and Public Debt Policy in Japan," in Takatoshi Ito and Andrew K. Rose, editors, "Fiscal Policy and Management in East Asia" University of Chicago Press (2007)

AB  - The purpose of this paper is to analyze sustainability issues of Japan%u2019s fiscal policy and then to discuss the debt management policy using the theoretical models and numerical studies. We also investigate the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction.
	We include a potential possibilities of the government bonds in our theoretical model. The public bonds, therefore, cannot be sold when the issuance leads the amount of debt outstanding to be more than a certain level. In this respect, the fiscal authority has to take into account the upper limit of stocks of public debt.
	This possibility of debt default provides the fiscal authority to issue public bonds strategically in an earlier period. A strategic behavior of fiscal authority induces the monetary authority, in a later period, to boost output and raise seigniorage revenues to eliminate the distortion of resource allocation due to the limitation on debt issuance. Therefore, the monetary policy in a later period suffers from an inflation bias from the ax ante point of view.
	There are two ways to eliminate this distortion toward successful fiscal restoration. One of them is to make the monetary authority more conservative than society in the sense that the price stability weight of monetary authority is higher than that of society. The other way of eliminating the distortion of the resource allocation is to design an institutional ceiling on the debt issuance. The direct ceiling can provide a binding constraint of the public bond issuance for the fiscal authority of Japan because it has accumulated the debt outstanding much more than other countries.
ER  -