Staff Report 586

On Financing Retirement, Health Care, and Long-Term Care in Japan

Ellen R. McGrattan | Consultant
Kazuaki Miyachi | Asia Pacific Department, International Monetary Fund
Adrian Peralta-Alva | Fiscal Affairs Department, International Monetary Fund

Published June 28, 2019

Abstract
Japan is facing the problem of how to finance retirement, health care, and long-term care expenditures as the population ages. This paper analyzes the impact of policy options intended to address this problem by employing a dynamic general equilibrium overlapping generations model, specifically parameterized to match both the macro- and microeconomic level data of Japan. We find that financing the costs of aging through gradual increases in the consumption tax rate delivers better macroeconomic performance and higher welfare for most individuals relative to other financing options, including raising social security contributions, debt financing, and a uniform increase in health care and long-term care copayments.

DOI: https://doi.org/10.21034/sr.586


Download Paper (pdf)

Additional files