 Fiscal cost of demographic transition in JapanJournal of Economic Dynamics and Control, 2015, vol. 54, issue C, 37-58 Abstract: This paper quantifies the fiscal cost of demographic transition that Japan is projected to experience over the next several decades, in a life-cycle model with endogenous saving, consumption, and labor supply in both intensive and extensive margins. Retirement waves of baby-boom generations, combined with a rise in longevity and low fertility rates, raise the old-age dependency ratio to 85% by 2050, the highest among major developed countries, and generate a significant budget imbalance, as the government faces rising costs of public pension and health and long-term care insurance. Preserving the current level of the transfers will require a major increase in taxation. Using consumption taxes to balance the government budget, the tax rate reaches the maximal value of 48% in late 2070s. A pension reform to reduce benefits by 20% results in a peak tax rate of 37%, which can be reduced further to 28% if the retirement age is also gradually raised by 5 years. Keywords: Social security reform; Demographic transition; Public pension program; Health insurance; Long-term care insurance; Japanese economy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:54:y:2015:i:c:p:37-58 DOI: 10.1016/j.jedc.2015.02.015 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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