This month's featured article
Fiscal sustainability in Japan: What to tackle
Selahattin İMROHOROĞLUProfessor of Finance and Business Economics, Marshall School of Business, University of Southern California
KITAO SagiriFaculty Fellow, RIETI
YAMADA TomoakiProfessor of Economics, Meiji University
Japan is ageing fast. Its dependency ratio, defined as the ratio of the population aged 65 and above to the population aged 20-64, was 48% in 2015. It is predicted to rise to 80% by the early 2050s and to stay at around 80% during the second half of the century.
Expenditures for age-related social insurance programmes – such as pensions, public health care, and long-term care insurance – are projected to rise significantly, far outpacing the projected revenues and insurance premia collected as the size of the working age population continues to shrink rapidly. Previous research found that a major increase in taxation, in the order of 30-50% of total consumption, would be needed to finance the demographic transition without any reform (e.g. Braun and Joines 2015, Kitao 2015, Hansen and Imrohoroglu 2013); otherwise, debt will reach an unsustainable level in the not too distant future (e.g. Doi, et al 2011, Hoshi and Ito 2014).
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