Can Japan Grow Its Way Out of Debt?
In Japan, the government debt reached 226% of GDP during 2010. Economic growth in Japan has averaged just 0.7% per year, and inflation (calculated as the growth rate of the GDP deflator) has averaged -0.7%. The Ministry of Finance reported that the average nominal interest rate that the government paid to borrow for 10 years was 1.2%. Given this information, was Japanese fiscal policy sustainable? If not, what would the primary budget deficit have to be to make fiscal policy sustainable?