Japan's debt problem dates back to the 1990s, when the country's economy experienced a severe recession after a period of rapid growth. In an attempt to stimulate the economy, the government embarked on a series of fiscal stimulus packages, which included large-scale public works projects and tax cuts. These measures led to a sharp increase in government spending and a corresponding increase in government debt.
Since then, Japan has continued to run large fiscal deficits, which have contributed to the growth of its debt. The government has also struggled to control spending, particularly on social welfare programs, which has further added to the debt burden.
One of the most significant risks associated with Japan's debt is the potential for a fiscal crisis. If the government is unable to meet its debt obligations, it could trigger a financial crisis that could have severe consequences for the global economy. Japan's debt is so large that even a small increase in interest rates could lead to a significant increase in debt servicing costs, which would put further strain on the government's finances.
To address this risk, Japan has taken a number of measures to reduce its debt burden. One of the most significant of these measures is the implementation of a consumption tax, which was first introduced in 1989 and has been raised several times since then. The consumption tax has helped to increase government revenue and reduce the deficit, although it has also been criticized for its potential impact on economic growth.
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