Braun, A. and D.H. Joines, 2015, “The Implications of a Graying Japan for Government Policy.” Journal of Economic Dynamics and Control, Vol. 15, pp. 1–23.
Imrohoroglu, S. and N. Sudo, 2011, “Productivity and Fiscal Policy in Japan: Short-Term Forecasts from the Standard Growth Model,” Monetary and Economic Studies, Bank of Japan, pp.73–106.
Imrohoroglu, S., S. Kitao, and T. Yamada, 2016, “Achieving Fiscal Balance in Japan,” International Economic Review, Vol. 57, pp. 117–53.
Kitao, S., 2015, “Fiscal Cost of Demographic Transition in Japan,” Journal of Economic Dynamics and Control, Vol. 54, pp. 37–58.
McGrattan E. R., K. Miyachi, and A. Peralta-Alva, 2018, “On Financing Retirement, Health, and Long-Term Care in Japan,” IMF Working Paper 18/249.
Prepared by Kazuaki Miyachi (APD) and Adrian Peralta-Alva (FAD).
For further details on the model tailored to Japan, see McGrattan, Miyachi and Peralta-Alva (2018).
The required consumption tax rate implied by this analysis stands at the lower end of the range obtained by alternative researches—see Braun and Joines (2015), Imrohoroglu and Sudo (2011), and Imrohoroglu, Kitao and Yamada(2016).
To match the model with Japan’s low interest rate environment, we followed the assumption in Braun and Joines (2015) and Kitao (2015) and assumed an exogenous interest rate on government debt. Private capital interest rates and the proportion of private capital as a share of total financial assets will be determined endogenously.
Higher GDP growth does not automatically lower government outlays as a percent of GDP. In particular, some expenditures are explicitly linked to growth and wages (e.g., pension benefits).