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Population Aging, Government Policy and the Postwar Japanese Economy

Keisuke Otsu () and Katsuyuki Shibayama

Studies in Economics from School of Economics, University of Kent

Abstract: This paper analyzes the Postwar Japanese economy with a parsimonious neoclassical growth model that incorporates the demographic transition in Japan. We find that i) the increase in the aged-population share can account for most of the decline in employment and reduced output by 8% from its potential level, ii) workweek shortening policy led to a 20% reduction in output from its potential level by reducing hours worked over the 1988-1992 period, iii) labor income tax led to an 11% reduction in output from its potential level by discouraging hours worked, iv) the shift in the composition of government spending may have caused a slowdown in productivity growth and hence a reduction in the potential output level itself.

Date: 2018-07
New Economics Papers: this item is included in nep-dge
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