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Sustainability of Social Security in the Aging Economy from the Perspective of Improving Health

Author

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  • Tomoaki Kotera

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Assistant Professor, Graduate School of Economics and Management, Tohoku University, E-mail: tomoaki.kotera.b1@tohoku.ac.jp))

Abstract

An aging economy is widely believed to increase the recipients of Social Security and thus increase the fiscal burden. However, since the health condition of the elderly today is better than before and may continue to improve in the future, the number of elderly workers may increase. This paper studies the quantitative role of old workers in the sustainability of Social Security in an aging economy by developing a computable overlapping generations model with heterogeneous agents in a general equilibrium framework. The distinctive feature of the model is the incorporation of health status linked to survival probability, medical expenditures, and disutility of labor. The model simulation shows that old workers play a significant role in mitigating the fiscal cost and the effect remains pronounced when Social Security reform is implemented. It also highlights the crucial role of the projected future health status of the population in quantifying the fiscal cost.

Suggested Citation

  • Tomoaki Kotera, 2020. "Sustainability of Social Security in the Aging Economy from the Perspective of Improving Health," IMES Discussion Paper Series 20-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:20-e-12
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    File URL: https://www.imes.boj.or.jp/research/papers/english/20-E-12.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Elderly Workers; Health; Social Security Reform; Benefit Claim; Overlapping Generations;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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