ESRI Discussion Paper Series No.282
Effects of deflation on Benefits and Burdens of the Pension

Minoru Masujima
Economic and Social Research Institute, Cabinet Office
Akihiro Morishige
Mitsubishi Research Institute

The full text is written in Japanese.


The purpose of this paper is to estimate the effects of deflation on intergenerational inequality through the pension system.

The current automatic adjustment mechanism (ADM) for pension benefits introduced in the 2004 Pension Reform is not activated during the deflation. The 2009 Pension Projection expects that the ADM will end in 2038 and the final replacement rate will be 50.1%. However, if the inflation rate continued to be zero until 2018, the ADM would be extended until 2064 and the final replacement rate would be 45.1%. Thus, deflation will make the intergenerational inequality worse.

However, if the ADM was modified to be activated even during the deflation, the new ADM would end in 2028 and the final replacement rate would be 51.9%. Thus, the new ADM prevents the intergenerational inequality from getting larger.

Ending deflation is a top priority, but to prepare for the longer period of deflation, it is necessary to make the ADM activate during the deflation.

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