ESRI Discussion Paper Series No.255
Child Benefits and Welfare for Current and Future Generations:
Simulation Analyses in an Overlapping-Generations Model with Endogenous Fertility

Kazumasa Oguro
Associate Professor, Institute of Economic Research, Hitotsubashi University
Consulting Fellow, Research Institute of Economic, Trade and Industry
Manabu Shimasawa
Associate Professor, Akita University
Visiting Fellow, Economic and Social Research Institute, Cabinet Office
Junichiro Takahata
PhD. Candidate, Graduate School of Economics, Hitotsubashi University

The full text is written in Japanese.

Abstract

We constructed an overlapping-generations model with endogenous fertility to analyze the effect of child benefits and pensions on welfare for current and future generations.
The following results were obtained.

First, when financial sustainability is not taken into account, the best policy to improve the welfare of future generations is to increase child benefits, financed by issuing government debt.

On the other hand, when financial sustainability is taken into account, the best policy is to increase child benefits financed by capital taxation, followed by VAT and payroll taxation. Further, when we have to reduce public debt, for future generations, debt reduction coupled with increasing child benefits is preferable to debt reduction alone.

From the viewpoint of pension reform, maintaining pension benefits by increasing VAT is better than cutting benefits for future generations.

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