2016年-PIIE彼得森国际经济研究所_Sustainability_of_Public_Debt_in_the_United_States_and_Japan_24页_2mb

Summary of the Document: Sustainability of Public Debt in the United States and Japan

Core Content

This paper applies the European Debt Simulation Model (EDSM), originally developed for the euro area, to analyze the sustainability of public debt in the United States and Japan. It evaluates whether current and projected fiscal policies will maintain a stable public debt-to-GDP ratio over the next decade. The analysis is based on baseline projections, alternative scenarios, and probabilistic modeling to assess the likelihood of debt sustainability.

Main Viewpoints

• Debt Sustainability Criterion: The paper introduces a key sustainability test:
  $$
  \pi \geq \lambda (r - g)
  $$
  Where:

  • $\pi$ is the primary surplus as a percent of GDP
  • $r$ is the nominal interest rate
  • $g$ is the nominal growth rate
  • $\lambda$ is the initial debt-to-GDP ratio

  If the primary surplus is sufficient to offset the interest burden, the debt-to-GDP ratio will decline. Otherwise, it will rise.

• United States:

  • The public debt-to-GDP ratio is expected to rise from 72.1% in 2013 to 78.1% in 2024 under the CBO baseline.
  • Net debt is projected to increase from 67% to 71% of GDP.
  • The primary deficit in the baseline is expected to narrow from 1.5% of GDP in 2014 to 0.5% in 2024.
  • To avoid further increases in the debt-to-GDP ratio, the primary deficit needs to be reduced by 0.75% of GDP annually.
  • Key drivers of the rising debt include mandatory health spending, interest costs, and lower discretionary spending.

• Japan:

  • Gross debt-to-GDP ratio is projected to increase from 104.5% in 2013 to 106.7% in 2019, and is expected to stabilize or slightly rise by 2024.
  • Net debt-to-GDP ratio is significantly lower due to large government assets, and is projected to increase from 67% in 2013 to 75% in 2024.
  • To avoid a rising debt-to-GDP ratio, the primary deficit must be reduced by 3% of GDP annually.
  • Key factors include low interest rates, strong home bias, and large government assets.

• Fiscal Challenges:

  • Both countries face challenges in maintaining debt sustainability due to rising mandatory spending, interest costs, and lower growth.
  • The US is projected to have a fiscal deficit of about 4% of GDP by 2024, driven by healthcare costs and interest payments.
  • The Japanese fiscal path is substantially less sustainable than the US, despite its low interest rates and high assets.

• Scenario Analysis:

  • The EDSM considers three scenarios for each key variable: favorable, baseline, and unfavorable.
  • For the US, favorable and unfavorable scenarios are defined based on growth, tax revenue, discretionary spending, and health spending.
  • For Japan, the GDP deflator is considered as a key variable, alongside growth, interest rate, and primary surplus.
  • The probability-weighted path indicates that the US debt-to-GDP ratio is expected to rise to 83% by 2024, which is significantly higher than the baseline.

Key Information

• United States:

  • The CBO baseline assumes 2.52% annual GDP growth and 2% inflation.
  • The favorable growth scenario increases growth by 0.34 percentage points to 2.86%.
  • The unfavorable growth scenario reduces growth to 2.34%.
  • The favorable interest rate scenario lowers the rate to 1.25% by 2024.
  • The unfavorable interest rate scenario raises the rate to 3.6%.
  • Income tax revenue is expected to rise in the favorable scenario by 0.5% of GDP, but freeze in the unfavorable.
  • Discretionary spending is projected to decline by 1.7% of GDP in the baseline and 0.1% in the favorable.
  • Health spending is expected to grow by 1.2% of GDP in the baseline and cap at 6% in the favorable.

• Japan:

  • The baseline growth is 1.2% annually, with a shrinkage in the labor force of 0.5% per year.
  • The baseline interest rate increases from 1% in 2013 to 3.1% in 2024.
  • The primary deficit is expected to fall from 5.7% of GDP in 2013 to 3% by 2015, but still remains high.
  • The GDP deflator is expected to rise from 0.5% to 1.0% in the baseline.
  • The favorable scenario assumes a lower interest rate and higher growth.
  • The unfavorable scenario assumes a higher interest rate and lower growth.

Policy Implications

• The US fiscal path is not fully stable over the next decade, despite recent legislation.
• The Japanese fiscal path is even more vulnerable, as it is still in large deficit and faces structural challenges.
• The EDSM provides a probabilistic framework for assessing the likelihood of debt sustainability.
• Fiscal policy must be adjusted to reduce primary deficits in both countries to ensure long-term debt stability.
• The model highlights the importance of growth, interest rates, and spending trends in determining the debt trajectory.

Conclusion

• The United States needs to reduce its primary deficit by 0.75% of GDP annually to avoid further debt increases.
• Japan needs to reduce its primary deficit by 3% of GDP annually.
• The EDSM is a useful tool for analyzing sovereign debt sustainability, and its application to the US and Japan shows that both face significant challenges.
• The baseline assumptions tend to be optimistic, and the probability-weighted path indicates greater downside risk than upside potential.
• The fiscal problem in the US is not fully resolved, and the Japanese fiscal path is substantially below sustainability.