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In Japan, intergenerational inequality in lifetime resources is substantial, with a heavier fiscal burden on the young than the old. Moreover, given the need for fiscal consolidation, the inequality is even worse than existing policy would suggest. However, this does not mean that fiscal consolidation would make the young worse off. Lack of fiscal consolidation would eventually increase interest rates, which would reduce output and hit young generations harder. Simulations using an overlapping generations model indicate that, from the perspective of intergenerational fairness, it would be desirable to include both social security spending reforms and revenue measures in a fiscal consolidation package. The simulations also show that delaying fiscal consolidation could be costly and worsen intergenerational resource inequality.
With Japan’s public debt reaching historical levels, the need for fiscal consolidation and structural reforms have increased. As fiscal consolidation will require a sustained and large adjustment in the fiscal balance, its growth effect is a concern particularly for the short run. This paper uses the IMF’s Global Integrated Monetary and Fiscal Model to analyze the growth impact of fiscal consolidation and structural reforms. Although fiscal consolidation has short-term costs, the potential long-term benefits are considerable, and reforms that raise potential growth could support consolidation. Simulations show that the external environment also matters but domestic policies should be the priority.
This book investigates the reasons for persistent public deficits and delayed fiscal reform in Japan, placing a special emphasis on political economy aspects. Japan is confronted with the need to pursue fiscal discipline for fiscal consolidation and implement structural reforms for reorganizing fiscal expenditures. Focusing on particular policy fields including social security, female labor supply, public works, and intergovernmental transfer schemes, the book clarifies economic and political elements that have hindered effective steps toward these two goals. Facing population aging and a business downturn, the Japanese government was urged to increase social security expenditures and the budget for Keynesian stimulus policies. As elucidated in the book, the institutional design has worked to over-represent the demands of elderly generations and local interest groups and to expand these expenditures. Rigorous theoretical and numerical analyses reported throughout the book consequently provide readers with insights into incentive designs and institutional reforms necessary for fiscal consolidation, also presenting points of view for public policy and public debate.
The Japanese economy has shown robust growth after the March 2011 Great East Japan earthquake. Post-earthquake, Japan has had to deal with devastating human toll and destruction, while businesses and households have had to recover from the losses. Exports were impacted by supply chain disruptions, weak global demand, and an appreciation of the yen. The Executive Board noted, however, that despite a weak global demand, the Japanese economy has shown remarkable resilience to severe economic distress and moderate market shocks.
This paper compiles and reviews the evolution of Japan’s Public Sector Balance Sheet (PSBS). In the past, large crossholdings of assets and liabilities within the public sector played a role in sustaining a high level of public debt and low interest rates. The Fiscal Investment and Loan Fund (FILF) channeled all postal deposits and pension savings to financing of public sector borrowing. After the FILF refrom in 2000, however, the Post Bank and pension funds shifted their assets to the portfolio investments and are seeking to maximize risk-adjusted returns. This has changed the implications of crossholdings for public debt management. In the future, population aging is expected to add more pressures on the PSBS, which already saw a considerable decrease of net worth over the last three decades.
This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.
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Pension reform is high on the agenda of many advanced and emerging market economies, for many reasons. First, public pensions often constitute a large share of government expenditure. Second, population aging means that reforms would be needed just to keep pension spending from rising in the future. Third, in many economies, low or falling pension coverage will leave large segments of the population without adequate income in old age and at risk of falling into poverty. Although a number of studies have assessed the effects of pension reforms on fiscal sustainability, a systematic analysis of equity issues in pension systems—and how countries have grappled with these issues—has yet to be undertaken. This book brings together the latest research on equity issues related to pension systems and pension reforms in the post-crisis world. Some of the key issues covered include: the effect of pension systems on intergenerational equity and the impact of pension reforms on poverty, the effects of pension reform measures on fiscal sustainability and equity, and the fiscal consequences of achieving different equity goals. It also presents country case studies. The volume provides a rich menu of material to assist policymakers and academic audiences seeking to understand the latest research in this area, as well as the lessons and challenges for the design of reforms.

Japan

International Monetary Fund. Asia and Pacific Dept

Published: 2018-11-28

Total Pages: 79


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Selected Issues
This book integrates the economics of aging and insight based on political economy and explores generational conflict in the context of governmental spending. This problem is general, as the Covid-19 pandemic has highlighted: lockdowns protect the elderly, but hurt the young. Policies to address global warming impose taxes on the elderly, but would bring benefits largely in the future. This book addresses intergenerational problems by placing its focus on budget allocation, taxation, and regulation. By using Japanese and US data, the authors conduct statistical analysis of whether regions with aging populations may adopt policies that generate benefits during a short period of time instead of policies that could benefit current young generations for an extended period of time. If the policy preferences of voters depend on their age, and if policy adoption by a government reflects public opinion, the change in demographic composition in a region may affect governmental policies. In an aged society, the elderly are pivotal voters. Budgets may be reallocated from policies favored by younger generations, such as education, to policies the elderly prefer, such as welfare programs. This generates an intergenerational externality problem: voters with short life expectancy do not take into consideration long-term benefits. Moreover, the current tax bases may be replaced by other tax bases that do not harm the elderly. The results reported in the book largely support these hypotheses. Evidence also shows that the gender and racial composition and institutional factors, including the extent of fiscal decentralization, are important in anticipating effects of population aging in other countries. .