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.- Household Behavior.- Firm Behavior.- Government Behavior.- Market Equilibrium.- Simulation Analysis.- Method of Simulation.- Solution Method and Computation Process.- Simulation Cases.- Parameterization of the Simulation Model.- Simulation Results.- Simulation Results and Their Interpretation.- Policy Implications.- Conclusions.- Appendix 2.A.- Appendix 2.B.- Progressive Taxes and Intragenerational Redistribution in an Aging Japan.- Theoretical Framework.- Household Behavior.- Firm Behavior.- Government Behavior.- Market Equilibrium.- Simulation Analysis.- Method of Simulation.- Simulation Cases.- Specification of Parameters.- Simulation Results.- Findings and Their Interpretation.- Comments.- 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.- Household Behavior.- Simulation Analysis.- Simulation Cases.- Specification of Parameters.- Simulation Results.- Findings and Their Interpretation.- Effects of the Two Tax Systems on Capital Accumulation.- Effects of the Two Tax Systems on Individual Behavior.- Conclusions.- How Can a Progressive Expenditure Tax Be Implemented?.- 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.- Household Behavior.- Simulation Analysis.- Method of Simulation.- Five Cases for Simulations.- Data and Parameter Values.- Simulation Results.- Simulation Results and Their Interpretation.- Comments.- Conclusions.- The Current Japanese State and Policy Implications.- Justification for Our Proposals.- Appendix 6.A.- A Life-Cycle General Equilibrium Simulation Model with Continuous Income Distribution: An Application to an Aging Japan.- Theoretical Framework.- Household Behavior.- Firm Behavior.- Government Behavior.- Market Equilibrium.- Simulation Analysis.- Simulation Method.- Simulation Cases.- Specification of Parameters.- Simulation Results.- Findings in the Simulation Results.- Comments.- 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.- Household Behavior.- Simulation Analysis.- Method of Simulation.- Simulations in Various Cases.- Specification of Parameters.- Simulation Results.- Findings and Their Interpretation.- Distortions of Progressive Expenditure Taxation on Individual Behavior.- 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.