Population Aging in Japan: Demographic Shock and Fiscal Sustainability

IMF Working Papers, March 1, 2001

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Population Aging in Japan: Demographic Shock and Fiscal Sustainability

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Bibliographic details

• Authors: Martin Mühleisen, Hamid Faruqee
• Published: March 1, 2001
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451845976.001

Summary and Objectives

• The paper develops a general equilibrium framework to examine the economic implications of population aging in Japan.
• Particular attention is paid to aggregate saving behavior, which is modeled on the basis of empirical age-earnings profiles using a life-cycle approach.
• The paper's objectives are to:
  • (i) estimate the output loss caused by demographic changes and assess the impact of aging on Japan's government finances; and
  • (ii) compare fiscal policy options with respect to their effects on output growth and economic welfare.

Methodology

• General equilibrium framework tailored to population aging in Japan.
• Aggregate saving behavior modeled using empirical age-earnings profiles and a life-cycle earnings approach.
• Emphasis on integrating demographic change, earnings profiles, saving, and pension liability into fiscal and macroeconomic analysis.

Key Findings and Projections

• The paper focuses on quantifying:
  • Output loss caused by demographic changes.
  • The impact of aging on Japan's government finances, including pension liability implications.
• Analysis compares fiscal policy options to evaluate effects on:
  • Output growth.
  • Economic welfare.

Policy Analysis and Comparisons

• Fiscal policy options are evaluated within the general equilibrium framework for their relative effectiveness in:
  • Mitigating output losses from demographic change.
  • Managing fiscal sustainability in the face of rising pension liabilities and changing saving behavior.
• The paper assesses trade-offs between alternative fiscal measures with respect to growth and welfare outcomes.

Subjects and Keywords

• Subjects: Aging, Demographic change, Financial institutions, Labor, Population and demographics, Securities, Wages
• Keywords: A. Age-earnings profile, age-earnings profile, aging, cyclical position, debt situation, Demographic change, earnings, earnings difference, fiscal policy, general equilibrium analysis, Global, Japan, Japan block, life-cycle earnings profile, pension liability, saving, Securities, Wages, WP

Content in this bundle

• Japan: Demographic Shock and Fiscal Sustainability - WP/01/40
  • Japan: Demographic Shock and Fiscal Sustainability - WP/01/40 (Markdown version)
  • Japan: Demographic Shock and Fiscal Sustainability - WP/01/40 (PDF)