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Population aging in Japan: demographic shock and fiscal sustainability

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  • Faruqee, Hamid
  • Muhleisen, Martin

Abstract

The paper develops a general equilibrium framework to examine the economic implications of population aging in Japan. Particular attention is paid to aggregate saving behavior which is modeled on the basis of empirical age-earnings profiles using a life-cycle approach. The paper's objectives are to (i) estimate the output loss caused by demographic changes and assess the impact of aging on Japan's government finances; and (ii) compare fiscal policy options with respect to their effects on output growth and economic welfare. The paper develops a general equilibrium framework to examine the economic implications of population aging in Japan. Particular attention is paid to aggregate saving behavior which is modeled on the basis of empirical age-earnings profiles using a life-cycle approach. The paper's objectives are to (i) estimate the output loss caused by demographic changes and assess the impact of aging on Japan's government finances; and (ii) compare fiscal policy options with respect to their effects on output growth and economic welfare. The paper develops a general equilibrium framework to examine the economic implications of population aging in Japan. Particular attention is paid to aggregate saving behavior which is modeled on the basis of empirical age-earnings profiles using a life-cycle approach. The paper's objectives are to (i) estimate the output loss caused by demographic changes and assess the impact of aging on Japan's government finances; and (ii) compare fiscal policy options with respect to their effects on output growth and economic welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 15 (2003)
Issue (Month): 2 (April)
Pages: 185-210

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Handle: RePEc:eee:japwor:v:15:y:2003:i:2:p:185-210

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Web page: http://www.elsevier.com/locate/inca/505557

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References

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  1. Richard Kohl & Paul O'Brien, 1998. "The Macroeconomics of Ageing, Pensions and Savings: A Survey," OECD Economics Department Working Papers 200, OECD Publishing.
  2. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  3. Hamid Faruqee, 2002. "Population Aging and Its Macroeconomic Implications: A Framework for Analysis," IMF Working Papers 02/16, International Monetary Fund.
  4. Paul R. Masson & Ralph W. Tryon, 1990. "Macroeconomic Effects of Projected Population Aging in Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 453-485, September.
  5. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
  6. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
  7. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  8. Steven A. Symansky & Douglas Laxton & Hamid Faruqee, 1996. "Government Debt, Life-Cycle Income and Liquidity Constrains: Beyond Approximate Ricardian Equivalence," IMF Working Papers 96/140, International Monetary Fund.
  9. Feldstein, Martin, 1980. "International differences in social security and saving," Journal of Public Economics, Elsevier, vol. 14(2), pages 225-244, October.
  10. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  11. Yukinobu Kitamura & Noriyuki Takayama, 1999. "Lessons from Generational Accounting in Japan," American Economic Review, American Economic Association, vol. 89(2), pages 171-175, May.
  12. Deborah Roseveare & Willi Leibfritz & Douglas Fore & Eckhard Wurzel, 1996. "Ageing Populations, Pension Systems and Government Budgets: Simulations for 20 OECD Countries," OECD Economics Department Working Papers 168, OECD Publishing.
  13. Hamid Faruqee & Douglas Laxton, 2000. "Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies," IMF Working Papers 00/126, International Monetary Fund.
  14. Sheetal K. Chand & Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund.
  15. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-91, September.
  17. repec:fth:harver:1490 is not listed on IDEAS
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Citations

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Cited by:
  1. Guest, Ross, 2007. "Innovations in the macroeconomic modelling of population ageing," Economic Modelling, Elsevier, vol. 24(1), pages 101-119, January.
  2. Giang, Thanh Long, 2004. "The Pension Scheme in Vietnam: Current Status and Challenges in an Aging Society," MPRA Paper 969, University Library of Munich, Germany.
  3. Christian Broda & David E. Weinstein, 2004. "Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability," NBER Working Papers 10988, National Bureau of Economic Research, Inc.
  4. Taiji Harashima, 2005. "Endogenous Growth Models in Open Economies: A Possibility of Permanent Current Account Deficits," International Trade 0502001, EconWPA, revised 10 Feb 2005.
  5. Scrimgeour, Dean, 2010. "Dynamic Scoring in a Romer-style Economy," Working Papers 2010-02, Department of Economics, Colgate University.
  6. Cheong, Siew Ann & Fornia, Robert Paulo & Lee, Gladys Hui Ting & Kok, Jun Liang & Yim, Woei Shyr & Xu, Danny Yuan & Zhang, Yiting, 2011. "The Japanese economy in crises: A time series segmentation study," Economics Discussion Papers 2011-24, Kiel Institute for the World Economy.
  7. Creedy, John & Guest, Ross, 2008. "Population ageing and intertemporal consumption: Representative agent versus social planner," Economic Modelling, Elsevier, vol. 25(3), pages 485-498, May.
  8. Rod Tyers & Qun Shi, 2006. "Global Demographic Change, Labour Force Growth and Economic Performance," ANU Working Papers in Economics and Econometrics 2006-462, Australian National University, College of Business and Economics, School of Economics.
  9. Cheong, Siew Ann & Fornia, Robert Paulo & Lee, Gladys Hui Ting & Kok, Jun Liang & Yim, Woei Shyr & Xu, Danny Yuan & Zhang, Yiting, 2012. "The Japanese economy in crises: A time series segmentation study," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(5), pages 1-81.
  10. Garry Young, 2002. "The implications of an ageing population for the UK economy," Bank of England working papers 159, Bank of England.
  11. Hamid Faruqee, 2002. "Population Aging and Its Macroeconomic Implications: A Framework for Analysis," IMF Working Papers 02/16, International Monetary Fund.
  12. Lamin Leigh, 2006. "Hong Kong Special Administrative Region: Macroeconomic Impact of an Aging Population in a Highly Open Economy," IMF Working Papers 06/87, International Monetary Fund.
  13. Qun Shi & Rod Tyers, 2005. "Global Demographic Change and Economic Performance Applications of an Augmented GTAP-Dynamic," ANU Working Papers in Economics and Econometrics 2005-450, Australian National University, College of Business and Economics, School of Economics.
  14. Chan, Ming Ming & Shi, Qun & Tyers, Rodney, 2005. "Global Demographic Change and Economic Performance: Implications for Agricultural Markets," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137808, Australian Agricultural and Resource Economics Society.

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