III. Public Debt and Economics of Ageing

• DOI Takero, FF

One of the key issues in the concern over the sustainability of Japan's public debt relates to ensuring the smooth issuance and circulation of government bonds in the markets. This requires an objective examination of the division of responsibilities and the coordination between fiscal and monetary authorities.

The purpose of this project is to develop a more comprehensive analytical framework that integrates the analysis of financial markets based on (partial equilibrium) theories of finance and the analysis of the economic impact of fiscal policies based on (general equilibrium) macroeconomic theories, and to use this analytical framework to clarify the policy implications of Japan's future government bond management policies and fiscal management rules for ensuring the sustainability of public debt.

To attempt a more objective analysis of policy management needed to ensure the sustainability of Japan's public debt, this project will verify the research of Broda and Weinstein (2004) who have argued that Japan's public debt can be sustained through a fully achievable path to primary balance.

• TACHIBANAKI Toshiaki, FF

In Japan some have argued that the combined burden of taxes and social insurance premiums should be held to 50% or less, but there appears to be little basis for this position. There are countries with a tax burden as high as 70% that are thriving economically, while one can find countries with a burden in the vicinity of 30% whose economies are stagnating. Although taxes and social insurance premiums impose a burden, they also provide benefits to the nation. Keeping these benefits in mind, this study will examine whether it is necessary for Japan to hold the burden to no more than 50% by determining the optimum tax-and-social-insurance burden for Japan. This will be done by simulation analysis using a simulation model.

The findings should make an important contribution by providing the basis for an examination not only of the pension system but of the entire social insurance system in the years ahead, including health care and long-term care.

• ICHIMURA Hidehiko, FF
• SHIMIZUTANI Satoshi, FF
• NOGUCHI Haruko, FF

The rate at which Japanese society is ageing has no parallel in the world. Past analyses of ageing have primarily taken a macroscopic approach and have tended to treat pensions, health care, and welfare separately. However, if the ultimate objective of social security is to improve the well-being of individuals, social security problems should be approached holistically and from the perspective of the "aged." Microscopic approaches are indispensable in making such analysis possible.

This project will develop panel data on the elderly, which has been conspicuously lacking in Japan, and will focus on: (1) health conditions of the elderly and their demand for medical and long-term care services; (2) income, consumption and asset formation of the elderly; and (3) labor supply of the elderly. While paying due attention to the special features of the elderly, the project will clearly identify the role of social security and will deduce relevant policy implications.

Major Research Results

• FUKAO Mitsuhiro, FF
• NAKATA Daigo, F

Rapid ageing is jeopardizing the sustainability of Japan's social security system and has made a general revamping of the entire system inevitable. The public pension system was reformed in 2004 and various measures were adopted that have improved the sustainability of the system. Nevertheless, further reforms are now being advocated. The purpose of this project is to review the following issues from the perspective of the economics of ageing and to undertake simulation analysis using macroeconomic models containing explicit provisions for social security systems:
(1) Impact of the 2004 pension reforms and policy measures for further improving the sustainability of the system.
(2) Features and conditions of a desirable pension system in light of Japan's economic conditions.
(3) Feasibility and evaluation of leading pension reform proposals.

• HIGUCHI Yoshio, FF
• KUROSAWA Masako, FF
• NAKATA Daigo, F

Japan is experiencing rapid ageing and must meet the challenges of maintaining economic vitality and developing social security systems that will be sustainable over the long term. These conditions prompt Japan to strive toward an "active ageing society" in which the capabilities and experiences of the elderly are actively utilized. This project will use domestic and international microdata and aggregated data to undertake comprehensive research comprising the following parts:
(1) Analysis of labor supplying activities of the elderly and wages, pensions, types of jobs, supply and demand for labor and employment management.
(2) Analysis of substitution in supply and demand for labor by age groups.
(3) Analysis of the impact of employment on the health assets of the elderly.

• HIGUCHI Yoshio, FF
• KODAMA Toshihiro, SF

The relationship between labor and business in Japan is changing. The relationship that supported social stability and economic efficiency until now - one based on guarantees and obligations - is shifting to one centered on individual responsibility and choice. As this occurs, the need has arisen for an "external labor market" outside the corporation that functions effectively in the allocation of labor resources as part of the social infrastructure supporting individual choice. At present, however, the external labor market does not perform this function adequately, with the result that unemployment stemming from a mismatch between demand and available resources is on the rise. To ensure that the external labor market functions properly, it is necessary not only to create employment opportunities but also to put in place systems for job placement and human resource development.

This study will undertake a statistical analysis using micro data in an effort to facilitate labor mobility by improving the functioning of the external labor market. Using international comparisons of Japan, the United States, and Europe, as well as case studies, it will identify problems in job creation and placement as well as human resource development in Japan and will consider measures for improving the situation.