The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Ellen McGrattan, Kazuaki Miyachi, and Adrian Peralta-Alva
INTERNATIONAL MONETARY FUND
Japan faces the problem of how to finance retirement, health, and long-term care expenditures as the population ages. This paper analyzes the impact of policy options intended to address this problem by employing a dynamic general equilibrium
overlapping generations model, specifically parameterized to match both the macroeconomic and microeconomic level data of Japan. We find that financing the costs of aging through gradual increases in the consumption tax rate delivers a better
macroeconomic performance and higher welfare for most individuals than other financing options, including those of raising social security contributions, debt
financing, and a uniform increase in health and long-term care copayments.