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A politically feasible social security reform with a two-tier structure

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  • Yamada, Tomoaki

Abstract

This paper investigates the welfare implications and political feasibility of social security reforms with a two-tier structure in Japan. We evaluate social security reforms from two points of view: (i) the ex-ante expected value of future generations, and (ii) whether current generations prefer reform to the status-quo system, which we call political feasibility. To evaluate the reforms, we use a large-scale overlapping generations model with idiosyncratic income risk and a two-tier structure. The first tier guarantees a basic pension and the second tier consists of the earnings-related part. Calibrating the parameters of the model to the Japanese economy, we compute the transition path and the two welfare criteria. We find that, given the two-tier structure in Japan, an increase in the basic pension and the abolition of the earnings-related part of the social security system improve the welfare of future generations, and ensures political feasibility when a consumption tax is the source of revenue.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 25 (2011)
Issue (Month): 3 (September)
Pages: 199-224

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Handle: RePEc:eee:jjieco:v:25:y:2011:i:3:p:199-224

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Web page: http://www.elsevier.com/locate/inca/622903

Related research

Keywords: Social security reform Political feasibility Consumption tax Capital income tax Aging;

References

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Cited by:
  1. Akira Okamoto, 2013. "Simulating Public Pension Reforms in an Aging Japan: Welfare Analysis with LSRA Transfers," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(4), pages 597-632, September.
  2. Gahramanov, Emin & Tang, Xueli, 2013. "A mixed blessing of lifespan heterogeneity," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 142-153.

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