Tax Policy for Aging Societies, 2004 Lessons from Japan

The Japanese population is aging faster than any other in the world. The per­ centage of Japan's population aged 65 and above was only 7.1% in 1970,but just 30 years later, in 2000, it reached 17.2%. A declining birth rate and a rising average life expectancy will continue to push this trend further. This situation is causing serious problems for Japanese society.Structural reforms, especially tax and social security reforms, to accommodate this drastic demographic change have become an urgent policy issue. The purpose of this book is to establish guidelines for tax and social security reforms in Japan in terms that are both efficient and equitable. In this study, an extended life-cycle general equilibrium model is employed to rigorously take account of the rapidly aging Japanese population. The simulation approach adopted in our analysis permits us to calculate the effects of alternative policy packages on capital accumulation and economic welfare. This enables us to make proposals for concrete economic policies.

The Applicability of the Life-Cycle Hypothesis of Saving to Japan.- A Life-Cycle General Equilibrium Simulation Model.- Modeling Demographics: Comparison of Two Steady States.- Intragenerational Equity.- Quantitative Analysis.- Progressive Expenditure Taxation.- Organization of This Book.- Taxation of Interest Income in an Aging Japan: Simulation Analysis Using a Life-Cycle General Equilibrium Model.- Theoretical Framework.- Simulation Analysis.- Simulation Results.- Conclusions.- Appendix 2.A.- Appendix 2.B.- Progressive Taxes and Intragenerational Redistribution in an Aging Japan.- Theoretical Framework.- Simulation Analysis.- Simulation Results.- Conclusions.- Appendix 3.A.- Appendix 3.B.- Appendix 3.C.- Appendix 3.D.- Appendix 3.E.- Simulating Progressive Expenditure Taxation in an Aging Japan.- Theoretical Framework.- Simulation Analysis.- Simulation Results.- Conclusions.- Appendix 4.A.- Inheritance Taxes and Tax Reforms in an Aging Japan.- Theoretical Framework.- Household Behavior.- Simulation Analysis.- Method of Simulation.- Simulation Cases.- Specification of Parameters.- Simulation Results.- Findings and Policy Implications.- Conclusions.- Appendix 5.A.- Appendix 5.B.- Appendix 5.C.- Integration of Tax and Social Security Systems: Financing Methods for a Public Pension Scheme in a Pay-as-you-go System.- Theoretical Framework.- Simulation Analysis.- Simulation Results.- Conclusions.- Appendix 6.A.- A Life-Cycle General Equilibrium Simulation Model with Continuous Income Distribution: An Application to an Aging Japan.- Theoretical Framework.- Simulation Analysis.- Simulation Results.- Conclusions.- Appendix 7.A.- Appendix 7.B.- Appendix 7.C.- Appendix 7.D.- Appendix 7.E.- Appendix 7.F.- Within-Cohort Inequality and Tax Reforms in an Aging Japan.- Theoretical Framework.- Simulation Analysis.- Simulation Results.- 8.5 Conclusions.- Appendix 8.A.- Appendix 8.B.- Appendix 8.C.- Summary and Conclusions.- General Summary.- Individual Summaries for Chapters 2–8.- of a Progressive Expenditure Tax.- Reservations and Suggestions for Future Research.- References.- Author Index.