ESRI Discussion Paper Series No.343
What Do Microsimulations Tell Us about Fiscal Costs of the Newly Launched Income Contingent Loans in Japan?

Masaaki Kawagoe
Economic and Social Research Institute, Cabinet Office
Yukiko Ito
Japan Center for Economic Research
Masato Takara
Japan Center for Economic Research

Abstract

This study estimates the fiscal costs incurred by the income contingent loans launched in April 2017 using a microsimulation approach. The study identifies three factors to understand how costly the loan scheme is: discount rate, female working conditions, and income mobility. The largest costs include about 40% of the mean loan outstanding at the time of graduation that would not be repaid in present discount value terms. This amount may be reduced as the discount rate falls from 2%, as more married females continue working at higher wages, and as more income dynamics are introduced, such as changes in the percentiles of income distributions during individuals’ lives. The costs would be, on average, 20 percentage points higher than their fixed repayment counterparts.

  • Keywords: microsimulation, income contingent loan, higher education, fiscal costs
  • JEL classifications: D14, I22, I23, I28, J22

Structure of the whole text(PDF-Format 1 File)

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  2. page1
    Abstract
  3. page2
    1. Introduction
  4. page3
    2. What is the ICL?
  5. page4
    3. Finance of Higher Education in Japan
    1. page5
      Figure 1 Overview of Financing Higher Education in Japan
  6. page6
    4. Data and Methodology
    1. page6
      4.1 Data
    2. page6
      4.2Methodology
      1. page8
        Figure 2 Overall Labor Market Situations in Sample Years
    3. page8
      4.3 Detailed Specifications of Student Loan Schemes
  7. page9
    5. Simulation Results
    1. page9
      5.1 Earnings
      1. page10
        Figure 3 Simulated Earnings in Case 1
      1. page11
        Figure 4 Simulated Earnings in Case 2
      1. page12
        Figure 5 Debt Developments over Repayment Periods
    2. page12
      5.2 Fiscal Costs
      1. page13
        Figure 6 Fiscal Costs Comparison between the Current ICL and Fixed Repayments by Case
      2. page14
        Table 1 Simulation Results of Fiscal Costs with Mobility
      3. page15
        Table 2 Simulation Results of Fiscal Costs without Mobility
    3. page15
      5.3 Discussions
      1. page16
        Figure 7 Career Preference Survey Results of Third-year Female Students
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    6. Conclusion
  9. page17
    Reference
  10. page19
    Appendix
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      Appendix 1: Details of Simulation Procedures
      1. page19
        A1.1 Converting categorical into numeric data
      2. page19
        A1.2 Details of the estimation
    2. page19
      Appendix 2: Details of Effects of Reduced Mobility
      1. page20
        Table A1 Estimation Results of the Logit Models
      2. page21
        Table A2 Fiscal Costs for Males With and Without Mobility
      3. page22
        Table A3 Fiscal Costs for Females With and Without Mobility
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