ERI Discussion Paper Series No.78
Macroeconomic and Fiscal Impacts of Japan's Aging Population with a Specific Reference to Pension Reforms

September 1997
Naohiro Yashiro
(Sophia University;
Research Institute, Economic Planning Agency)
Takashi Oshio
(Ritsumeikan University;
Economic Research Institute, Economic Planning Agency)
Mantaro Matsuya
(Economic Research Institute, Economic Planning Agency)


The aging of Japan's population will affect both macroeconomic and fiscal developments in the country. The larger the increase in elderly population, the more inter-generational income transfers are incurred, with heavier burdenslevied on the working generations. In addition, the risk is that the government deficit will grow without control due to a substantial increase in social security payments.

In Part I of this paper, we summarize the falling fertility rates and increased longevity rates, which are major factors underlying the rapid aging of Japan's population, and their macroeconomic and fiscal implications. In Part II, we forecast labor market and macroeconomic projections up to the year 2050. We then go on to discuss the fiscal impacts of an aging population -- focusing on public pensions -- and examine possibilities for reducing the excessive burden of the working generations in their support of the elderly.

Our econometric projections, which explicitly analyze the interaction between the public sector strategies and the economy, clearly indicate the vulnerability of the current system to the pressure from demographic developments. To put the fiscal position on a sustainable path and to contain a substantial rise in taxes and contributions, the social security system needs additional adjustments.

Structure of the whole text

  1. Abstract別ウィンドウで開きます。(PDF-Format 710 KB)
  2. page1
  3. page3
    Part I
    1. page3
      1. Major Factors Behind Japas's Rapidly Aging Population
    2. page4
      2. Labor Market Impacts of the Aging Population
    3. page6
      3. The Macroeconomic Consequences of an Aging Population
    4. page7
      4. The Fiscal Impact of Japan's Aging Population
  4. page9
    Part II
    1. page9
      Section 1. Structure of the model
      1. page9
        1. Main Features of the Model
      2. page10
        2. Macroeconomic Sector
      3. page13
        3. Labor Supply Sector
      4. page15
        4. Public Finance Sector
    2. page17
      Section 2. Simulations and Policy lmplications
      1. page17
        1. Baselins Simulation -- Standard Case
      2. page21
        2. Alternative Scenarios
  5. page25
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