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Intergenerational Implications of Fiscal Consolidation in Japan

Author/Editor: Kiichi Tokuoka
Authorized for Distribution: August 1, 2012
Electronic Access: Free Full Text (PDF file size is 806KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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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Series: Working Paper No. 12/197
Subject(s): Aging | Economic models | Fiscal consolidation | Fiscal reforms | Government expenditures | Revenue measures
Author's keyword(s): Intergenerational inequality | Fiscal consolidation | Overlapping generations model
    Published:   August 1, 2012        
    ISBN/ISSN:   9781475505474/1018-5941   Format:   Paper
    Stock No:   WPIEA2012197   Pages:   25
    Price:   US$18.00
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