Comments on “Overview of the Japanese Deficit Question”

Abstract

How worried should we be about Japan’s fiscal situation? Hubbard and Ito divide the debate into “optimists,” epitomized by people like Christian Broda and myself, who argue that a fiscal crisis is not imminent in Japan, and “pessimists” who are worried about a financial crisis. For pessimists, taxes must rise now in order to cover ever higher expenditures in the future. Certainly, one can imagine a sense of prudence associated with the pessimist approach. Ceteris paribus, having a fiscal surplus and lower debt surely reduces the chance of a financial meltdown, which clearly has some benefits. Isn’t this a sufficient reason to err on the side of caution?