Creator: McGrattan, Ellen R., Miyachi, Kazuaki, and Peralta-Alva, Adrian Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 586 Abstract:
Japan is facing the problem of how to finance retirement, health care, 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 macro- and microeconomic level data of Japan. We find that financing the costs of aging through gradual increases in the consumption tax rate delivers better macroeconomic performance and higher welfare for most individuals relative to other financing options, including raising social security contributions, debt financing, and a uniform increase in health care and long-term care copayments.
Keyword: Japan, Aging, Retirement, Health care, and Taxation Subject (JEL): I13 - Health Insurance, Public and Private, E62 - Fiscal Policy, H51 - National Government Expenditures and Health, and H55 - Social Security and Public Pensions