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Population aging: Japan again

The sort of models we examined proliferate. Below is an abstract and link for the latest, which adds an open economy component. Their model differs in many details from that of Fehr et al., including how productivity is incorporated, when and at what level government debt stabilizes (after which tax rates become endogenous) and on and on. Rather than writing my own paper on Fehr et al let me instead comment on this paper.

Muto, Oda and Sudo find that while output per worker grows, the number of workers falls so (i) GDP per capita for the population as a whole is very nearly flat while (ii) consumption per worker falls. From an OLG perspective, retirees consume more than workers, and the share of retirees rises, hence their share of the pie rises and that of workers falls. With more-or-less static GDP per worker, their real income falls under 1% TFP growth but rises under 2% TFP growth.

When they include gradually increasing longevity, workers work more and save more (hence more investment, too), but then there are more retirees. They offset each other so GDP per capita doesn’t shift. However, they don’t consider shifts in the retirement age, indeed have all workers retire by age 65. Recent data that I’ve looked at suggest that is wrong on two fronts. One, there has been a modest shift in policies to raise “the” retirement age and my reading is that this will intensify over time, the general public is already factoring that in. Second, participation at older ages is much higher than in the US and is no longer falling, indeed has risen a bit. If leisure is a normal good, the limits of a long-term trend in Japan towards greater retirement appear to have been reached, and it’s not just a feature of the past couple years (a sharp recession in 2009, and then 3/11 [the 11 March 2011 earthquake/tsunami/nuclear power shutdown].

An open economy leads to a nicer outcome. Initially demographics encourages capital outflows (with slow growth, investment falls more rapidly than savings, lowering domestic profits). Eventually savings fall (life-cycle effects, retirees dis-save and there are more of them) but foreign income allows higher investment [and hence higher consumption] and can also be directly used for higher consumption.

Remember though that these are very simple models along some dimensions. There is only a single type of output, produced by a single Cobb-Douglas technology firm. So trade is not a comparative advantage story, it is a [the!] balancing mechanism for capital flows; even if healthcare shows up as a transfer, with a single good there’s implicitly perfect substitution across all areas of consumption and investment. Consumption and labor supply are done by a representative household. The short-run economy is always at full employment of both capital and labor; no business cycle is possible. With a single good there’s no inflation [or for Japan, deflation]. Lots of parameters must be assumed. Still, it’s a way to try to check for the magnitude of tradeoffs, and that interactions don’t amplify other variables. The bottom line ends up similar to back-of-the-envelope calculations.

Oh, and even though the paper is by three Japanese authors at the Bank of Japan, it is available only in the international language of economics, mathenglish. (Actually, the prose of the paper is both clear and faultless in grammar and expression.)

Muto, Ichiro, Oda, Takemasa and Sudo, Nao. “Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model.” Bank of Japan, 2012-11.

Due to a sharp decline in the fertility rate and a rapid increase in longevity, Japan’s population aging is the furthest advanced in the world. In this study we explore the macroeconomic impact of population aging using a full-fledged overlapping generations model. Our model replicates well the time paths of Japan’s macroeconomic variables from the 1980s to the 2000s and yields future paths for these variables over a long horizon. We find that Japan’s population aging as a whole adversely affects GNP growth by dampening factor inputs. It also negatively impacts on GNP per capita, especially in the future, mainly due to the decline in the fraction of the population of working-age. For these findings, fertility rate decline plays a dominant role as it reduces both labor force and saver populations. The effects of increased longevity are expansionary, but relatively minor. Our simulations predict that the adverse effects will expand during the next few decades. In addition to closed economy simulations, we examine the consequences of population aging in a small open economy setting. In this case a decline in the domestic capital return encourages investment in foreign capital, mitigating the adverse effects of population aging on GNP.


わが国は、急速な出生率の低下と寿命の長期化によって、少子・高齢化が世界で最も進んだ国となっている。本稿は、少子・高齢化がわが国に与えるマクロ経済的インパクトについて、世代重複(Overlapping Generations、以下OG)モデルに基づき、定量的な評価を行ったものである。




(1) 少子・高齢化の発生原因のうち、「出生率の低下」は、労働力人口と貯蓄主体の数を減少させることで、労働と資本の両面から、経済成長率を低下させる。一方、「寿命の長期化」は、老後への備えの必要性を高めることにより、勤労世代による貯蓄や労働投入を増大させ、経済成長率を高める効果を持つ。わが国の場合は出生率低下のマイナス効果が長寿化のプラス効果を凌駕するため、少子・高齢化は全体として、経済成長率に負のインパクトを与えている。また、少子・高齢化は、生産年齢人口比率を低下させることを主因に、わが国の一人当たりGNPに対しても、特に先行きについて、負の影響をもたらすことが示唆される。

(2) OGモデルを小国開放経済に拡張した分析によれば、少子・高齢化が進展した場合、国内の資本収益率の低下に伴って、海外との収益率格差が拡大するため、海外への投資が促進され、資本収支の裏側にある経常収支が改善する。一方、少子・高齢化により、国内の生産力が需要との対比で低下するため、貿易収支はいずれ赤字化する。こうしたもとで、経常収支が改善するのは、海外での資本蓄積が進むにつれて、所得収支の黒字幅が拡大するためである。その結果、一人当たりGNPは、開放経済の下では、閉鎖経済の場合と比べて上振れる。