Japan is faced with rapid demographic ageing and fiscal challenges. This paper simulates pension reform to reduce the replacement rate by 20% and raise the retirement age by 3 years gradually over a 30-year period. We consider three scenarios with different points in time to initiate reform in 2020, 2030 and 2040, respectively. A delay would suppress economic activities, lowering output by up to 4% and raising tax burden by more than 8% of total consumption. Delaying reform implies a transfer of costs of demographic ageing to the young and deteriorates the welfare of future generations by up to 3% in terms of consumption equivalence.
ASJC Scopus subject areas
- Economics and Econometrics