Policy uncertainty and cost of delaying reform: a case of ageing Japan
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Sagiri Kitao, Keio University, Japan
With ageing demographics and generous pay-as-you-go social security, reform to reduce benefits is inevitable. Often times, however, timing and structure of reform are unknown. We explicitly model policy uncertainty in a general equilibrium life-cycle model. Using a case of Japan, that faces the severest demographic and fiscal challenges, we quantify welfare tradeoff across generations by delaying reform or reducing its scope. Individuals react to a delay in reform by dis-saving and working less, reducing output and raising taxes needed for a fiscal balance. Fiscal uncertainty itself hurts older individuals more, who become exposed to greater income risks.
Light lunch available.
The Research School of Economics hosts four active seminar series in Applied Microeconomics, Economic Theory, Macroeconomics as well as a General series. Speakers include international and locally well-known economists.
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