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Source of Finance for Social Security Reform with Redistribution

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  • Yamada, Tomoaki

Abstract

This study investigates the welfare implications of social security reforms in Japan. Based on the overlapping generations model with idiosyncratic income risk, we consider four social security reform plans: (1) gradual reduction in the replacement rate by half, (2) sudden cut in the replacement rate by half, (3) introduction of a consumption tax, and (4) introduction of a capital income tax. We compute the transition paths of each case, and find that the introduction of a consumption tax and a capital income tax improves the welfare of young and future households, based on ex-ante welfare. We also reveal that two redistribution effects of the basic public pension are keys when considering social security reforms: (a) the insurance effect on lifetime income, and (b) the intertemporal effect that affects the asset and consumption profile.

Suggested Citation

  • Yamada, Tomoaki, 2009. "Source of Finance for Social Security Reform with Redistribution," Discussion Paper Series a513, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hituec:a513
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16866/1/DP513.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yamada, Tomoaki, 2011. "A politically feasible social security reform with a two-tier structure," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 199-224, September.

    More about this item

    Keywords

    Social Security Reform; Consumption Tax; Capital Income Tax;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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