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Growing Modern Monetary Theory debate rattles Japan officials

Untested economic model has big implication on country's planned tax hike and debt policy

Modern Monetary Theory argues that deficits can be maintained so long as they do not generate inflation.

TOKYO -- A controversial economic theory has Japanese government officials on alert, even as advocates point to the country as an example of the theory's efficacy.

In broad terms, Modern Monetary Theory proposes that fiscal deficits are tolerable since a government can print money to service its own debt as long as inflation is avoided. If signs of inflation emerge, it can be mitigated by cutting government spending and increasing taxes.

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