Source of Finance for Social Security Reform with Redistribution

Tomoaki Yamada, 知明 山田 and トモアキ ヤマダ

No a513, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This study investigates the welfare implications of social security reforms in Japan. Based on the overlapping generations model with idiosyncratic income risk, we consider four social security reform plans: (1) gradual reduction in the replacement rate by half, (2) sudden cut in the replacement rate by half, (3) introduction of a consumption tax, and (4) introduction of a capital income tax. We compute the transition paths of each case, and find that the introduction of a consumption tax and a capital income tax improves the welfare of young and future households, based on ex-ante welfare. We also reveal that two redistribution effects of the basic public pension are keys when considering social security reforms: (a) the insurance effect on lifetime income, and (b) the intertemporal effect that affects the asset and consumption profile.

Keywords: Social Security Reform; Consumption Tax; Capital Income Tax (search for similar items in EconPapers)
JEL-codes: D31 D33 E24 E25 H55 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-01
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:a513

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