Redistribution Effect of Taxes and Social Security: Evidence from JSTAR

Author Name NAKATA Daigo  (Fellow, RIETI)
Creation Date/NO. August 2012 12-J-028
Research Project Toward a Comprehensive Resolution of the Social Security Problem: A new economics of aging
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Using the Japanese Study of Aging and Retirement (JSTAR) dataset (1st wave and 2nd wave), we examine the redistribution effect of taxes and social security on the labor participation decisions for elderly households. We show that the redistribution of taxes and social security in Japan works only with the generation of pensioners over the age of 65 and is ineffective for the working generation. The pension benefits prevent elderly households from falling into relative poverty, but the effect is comparatively weak in relation to the labor income. In addition, the curbing effects for the labor supply of pension benefits are observed only in the elderly with significant benefits. Moreover, mental and physical health also significantly affects the elderly's labor participation decisions.

The results of this paper suggest that social security benefits need to be designed to harmonize with the elderly's self-help or employment situation, and that some measures to improve their quality of life (QOL) are essential to encourage their labor participation.