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Intergenerational Implications of Fiscal Consolidation in Japan
Author:
Kiichi Tokuoka
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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 197
Language:
English
Publication Date:
01 Aug 2012
DOI:
https://doi.org/10.5089/9781475505474.001
ISBN:
9781475505474
ISSN:
1018-5941
Pages:
25
Keywords:
WP; income; replacement ratio; present discounted value; VAT; Intergenerational inequality; Fiscal consolidation; Overlapping generations model; OLG simulation; pension replacement ratio; VAT increase; net burden; OLG model; Pensions; Pension spending; Securities; Aging; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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In Japan, intergenerational inequality in lifetime resources is substantial, with a heavier fiscal burden on the young than the old. Moreover, given the need for fiscal consolidation, the inequality is even worse than existing policy would suggest. However, this does not mean that fiscal consolidation would make the young worse off. Lack of fiscal consolidation would eventually increase interest rates, which would reduce output and hit young generations harder. Simulations using an overlapping generations model indicate that, from the perspective of intergenerational fairness, it would be desirable to include both social security spending reforms and revenue measures in a fiscal consolidation package. The simulations also show that delaying fiscal consolidation could be costly and worsen intergenerational resource inequality.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund