ESRI Discussion Paper Series No.246
Fiscal Sustainability and Intergenerational Inequality

Minoru MASUJIMA
(Senior Research Fellow, Economic and Social Research Institute, Cabinet Office)
Goro TANAKA
(Economic and Social Research Institute, Cabinet Office)

The full text is written in Japanese.

Abstract

To quantify intergenerational inequality and to check fiscal sustainability, this paper has estimated each generation's lifetime benefits and burdens through governments as well as underlying fiscal developments.Assuming the status quo, (1) intergenerational inequality is small among the generations under age 60. (2) This is due to postponing burdens to the future generation, which causes large intergenerational inequality between the age zero and the future generation. Otherwise, (3) large budget deficits continue, net debt accumulates, and the public finance loses sustainability.To avoid this scenario, when the primary fiscal balance improves by 8% of GDP since 2015, (1) net debt to GDP ratio stabilizes and fiscal sustainability is ensured. On the other hand, (2) inequality between the future and the age zero generations decreases significantly, but (3) inequality among the existing generations becomes larger by taxation.Assuming delayed action, (1) inequality among the existing generations becomes larger. Also, (2) necessary improvement of the primary fiscal balance becomes larger and (3) net debt to GDP ratio is higher when it stabilizes.The higher the productivity growth is, the lower the interest rate is, and the higher the fertility rate is, the lifetime net burdens of the future generation becomes smaller and the fiscal consolidation becomes easier.

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