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Public Debt and Population Change: A Future Prediction of the Long Lasting Effects of a Shrinking Population on the Public Debt of Japan

Wahlquist, Joachim LU (2023) NEKH03 20231
Department of Economics
Abstract
It is the primary purpose of this thesis to examine the relationship between public debt and population change for Japan. The study also aims to analyse if government revenues and interest rates could affect the future Japanese debt-to-GDP ratio. Consequently, through the use of an adapted form of the Romer model of economic growth, the study first creates future predictions of how the Japanese GDP and GDP per capita level could progress for seven different demographic scenarios up until 2065. Utilising these GDP levels and predictions of the future interest rates, government revenues and government expenditure, the study then evaluates how Japan’s future debt-to-GDP ratio could change under four different scenarios of how future... (More)
It is the primary purpose of this thesis to examine the relationship between public debt and population change for Japan. The study also aims to analyse if government revenues and interest rates could affect the future Japanese debt-to-GDP ratio. Consequently, through the use of an adapted form of the Romer model of economic growth, the study first creates future predictions of how the Japanese GDP and GDP per capita level could progress for seven different demographic scenarios up until 2065. Utilising these GDP levels and predictions of the future interest rates, government revenues and government expenditure, the study then evaluates how Japan’s future debt-to-GDP ratio could change under four different scenarios of how future government revenues progress. The main results of the study finds that both future government revenues and demographic change will have a large impact on the future debt-to-GDP ratio of Japan. With this the study identifies that the timing of the eventual demographic transition and government revenue development will also be of substantial significance. For example, it is found that while an early temporary increase in government revenues might dramatically lower the debt-to-GDP ratio, a future similar increase will have a lessened effect, especially paired with an unfavourable future demographic scenario. While the study utilises a simplified version of immigration, it finds that future immigration could effectively be used to alter and lessen the economic and debt burden of the changing demographic situation of Japan. Furthermore, should any such immigration be paired with an effective political and economic nativist policy the study argues that the results could likely even further lessen the future debt-to-GDP ratio. Should Japan ignore the demographic and economic issues facing the nation, holding future government revenues constant and perhaps not adapting to the demographic situation, the study finds that the future debt-to-GDP ratio will grow perilously high, especially if interest rates rise even higher than that of the study. (Less)
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author
Wahlquist, Joachim LU
supervisor
organization
course
NEKH03 20231
year
type
M2 - Bachelor Degree
subject
keywords
Debt-to-GDP, Demographic Change, Romer model, Government Revenues, Japan
language
English
id
9119343
date added to LUP
2024-01-22 15:48:50
date last changed
2024-01-22 15:48:50
@misc{9119343,
  abstract     = {{It is the primary purpose of this thesis to examine the relationship between public debt and population change for Japan. The study also aims to analyse if government revenues and interest rates could affect the future Japanese debt-to-GDP ratio. Consequently, through the use of an adapted form of the Romer model of economic growth, the study first creates future predictions of how the Japanese GDP and GDP per capita level could progress for seven different demographic scenarios up until 2065. Utilising these GDP levels and predictions of the future interest rates, government revenues and government expenditure, the study then evaluates how Japan’s future debt-to-GDP ratio could change under four different scenarios of how future government revenues progress. The main results of the study finds that both future government revenues and demographic change will have a large impact on the future debt-to-GDP ratio of Japan. With this the study identifies that the timing of the eventual demographic transition and government revenue development will also be of substantial significance. For example, it is found that while an early temporary increase in government revenues might dramatically lower the debt-to-GDP ratio, a future similar increase will have a lessened effect, especially paired with an unfavourable future demographic scenario. While the study utilises a simplified version of immigration, it finds that future immigration could effectively be used to alter and lessen the economic and debt burden of the changing demographic situation of Japan. Furthermore, should any such immigration be paired with an effective political and economic nativist policy the study argues that the results could likely even further lessen the future debt-to-GDP ratio. Should Japan ignore the demographic and economic issues facing the nation, holding future government revenues constant and perhaps not adapting to the demographic situation, the study finds that the future debt-to-GDP ratio will grow perilously high, especially if interest rates rise even higher than that of the study.}},
  author       = {{Wahlquist, Joachim}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Public Debt and Population Change: A Future Prediction of the Long Lasting Effects of a Shrinking Population on the Public Debt of Japan}},
  year         = {{2023}},
}