Analyzing Japan's Public Pension Reform in an Overlapping Generations Economy with Heterogeneous Households

Mingyan Chen ()
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Mingyan Chen: Kyoto University

No 1111, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Japan's aging population and shrinking workforce are straining the public pension system. This study extends a Bewley-type overlapping generations model with heterogeneous households, more precisely accounting for Japan's tax system and two-tier pension structure, to analyze the effects of Japan's public pension reform proposals on individual households, the aggregate economy, and social welfare. The model calibrated to the 2022 Japanese economy suggests that cutting pension benefits by 20%, raising the eligibility age by five years, and removing the pension adjustments and suspensions under the statutory system would all increase private wealth, thus capital stock, labor supply, and total output in the long run if the pension tax rate and the consumption tax rate were adjusted to balance the government budget. With regard to the welfare impact, current and near-future households would experience net losses on average, whereas future households would benefit overall.

Keywords: Pension reform; Retirement age; Overlapping generations; Heterogeneous agents; Social welfare. (search for similar items in EconPapers)
JEL-codes: E62 H55 J26 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2025-02
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