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Pension reform and individual retirement accounts in Japan

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  • Kitao, Sagiri

Abstract

The paper studies effects of introducing individual retirement accounts (IRA) as an alternative to the employer-based pay-as-you-go public pension in Japan. Without any reform, projected demographic transition implies a massive increase in government expenditures in the magnitude of 40% of total consumption at the peak. Gradually shifting earnings-related part of pension towards self-financed IRA, expenditures can be reduced by 20% of consumption, providing a major relief for the government budget. The reform generates a significant rise in capital, as individuals save more for retirement, which is invested for many years. As a result, wage, output and consumption are also higher, leading to a sizeable welfare gain in the intermediate and long-run. Current generations, however, can face a large welfare loss depending on how the transition is financed.

Suggested Citation

  • Kitao, Sagiri, 2015. "Pension reform and individual retirement accounts in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 111-126.
    • Handle: RePEc:eee:jjieco:v:38:y:2015:i:c:p:111-126
    DOI: 10.1016/j.jjie.2015.06.002
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    2. Oliwia Komada & Krzysztof Makarski & Joanna Tyrowicz, 2017. "Welfare effects of fiscal policy in reforming the pension system," GRAPE Working Papers 11, GRAPE Group for Research in Applied Economics.
    3. Minchung Hsu & Tomoaki Yamada, 2019. "Population Aging, Health Care, and Fiscal Policy Reform: The Challenges for Japan," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 547-577, April.
    4. Hirono, Makoto & Mino, Kazuo, 2019. "Pension, Retirement, and Growth in the Presence Heterogeneous Elderly," MPRA Paper 98096, University Library of Munich, Germany.
    5. Selahattin İmrohoroğlu & Sagiri Kitao & Tomoaki Yamada, 2017. "Can Guest Workers Solve Japan'S Fiscal Problems?," Economic Inquiry, Western Economic Association International, vol. 55(3), pages 1287-1307, July.
    6. Jiang, Yunyun & Zhao, Tianhao & Zheng, Haitao, 2021. "Population aging and its effects on the gap of urban public health insurance in China," China Economic Review, Elsevier, vol. 68(C).
    7. Sagiri Kitao, 2018. "Policy Uncertainty and Cost of Delaying Reform: The Case of Aging Japan," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 81-100, January.
    8. Kato, Ryuta Ray, 2018. "The future prospect of the long-term care insurance in Japan," Japan and the World Economy, Elsevier, vol. 47(C), pages 1-17.
    9. Hirono, Makoto & Mino, Kazuo, 2020. "Pension Reforms, Population Aging, and Retirement Decision of the Elderly in a Neoclassical Growth Model," MPRA Paper 102467, University Library of Munich, Germany.
    10. Kato, Ryuta Ray, 2022. "Population aging and labor mobility in Japan," Japan and the World Economy, Elsevier, vol. 62(C).
    11. Mihály, Nikolett & Komáromi, Nándor, 2017. "Pension Policy Challenges and Communication Solutions," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2017), Dubrovnik, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Dubrovnik, Croatia, 7-9 September 2017, pages 274-281, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    12. Miyazato, Naomi, 2020. "Intergenerational Inequality and the Contract Out Policy in Public Health Care," Japan and the World Economy, Elsevier, vol. 54(C).
    13. Daniel Homocianu, 2020. "A Methodology of Discovering Comparable Models. The Case of Investing in Retirement Accounts when Considering Age, Main Residence and Education before 1989 vs. Globalization," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 67(4), pages 19-31, December.
    14. Makarski, Krzysztof & Tyrowicz, Joanna & Komada, Oliwia, 2021. "Efficiency versus Insurance: Capital Income Taxation and Privatizing Social Security," IZA Discussion Papers 14805, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Pension reform; Individual retirement account; Aging demographics; Japanese economy;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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