When Do We Start? Pension reform in aging Japan

Sagiri Kitao

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Japan is going through rapid and significant demographic aging. Fertility rates have been below replacement level for four decades, and life expectancy has increased by 30 years since the 1950s. The pension reform of 2004 is expected to reduce the replacement rate, but there is much uncertainty as to when and whether the adjustment will be complete. The normal retirement age of 65 will be the lowest among major developed countries. This paper simulates pension reform to reduce the replacement rate by 20% and raise the retirement age by three years gradually over a 30-year period. We consider three scenarios that differ in timing to initiate reform and let the consolidation start in 2020, 2030, and 2040, respectively. A delay would suppress economic activities, lowering output by up to 4% and raising the tax burden by more than eight percentage points of total consumption. Delaying reform also implies a major tradeoff across generations and deteriorates the welfare of future generations by up to 3% in consumption equivalence.

Pages: 23 pages
Date: 2016-07
New Economics Papers: this item is included in nep-age, nep-dge, nep-pbe and nep-sog
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https://www.rieti.go.jp/jp/publications/dp/16e077.pdf (application/pdf)

Related works:
Journal Article: When do we Start? Pension reform in ageing Japan (2017)
Journal Article: When do we Start? Pension reform in ageing Japan (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:16077

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