Population Aging, Government Policy and the Postwar Japanese Economy

Transcription

1 Population Aging, Government Policy and the Postwar Japanese Economy Keisuke Otsu and Katsuyuki Shibayama University of Kent 27 December 2016 Otsu & Shibayama (Kent) Aging 12/27 1 / 33

2 Introduction Motivation Japan has gone through rapid population aging over the past few decades decline in the share of working age population (15-64) among adults (15+) decline in adult population growth rate How important is population aging and related government policies in accounting for postwar Japanese growth? Otsu & Shibayama (Kent) Aging 12/27 2 / 33

3 Output per Adult Introduction Postwar Japanese Growth 5,000,000 1,000, , Figure: Real GDP per adult Otsu & Shibayama (Kent) Aging 12/27 3 / 33

4 Population (10 Thousands) Introduction Population Aging Years Old 65+ Years Old Figure: Population Share Otsu & Shibayama (Kent) Aging 12/27 4 / 33

5 Introduction Related Studies Neoclassical model for postwar Japanese growth Christiano (1989), King and Rebelo (1993): capital destruction and subsistence consumption Hayashi and Prescott (2002), Chen, Imrohoruglu and Imrohoroglu (2006): productivity growth Demographic effects on Japanese output Chen, Imrohoruglu and Imrohoroglu (2007), Braun, Ikeda and Joines (2009), Yamada (2012): productivity dominates demographic effects in OLG Labor decline Hayashi and Prescott (2002), Yamada (2012): cut in the workweek during the lost decade Braun, Ikeda and Joines (2009): reduction in family size Otsu & Shibayama (Kent) Aging 12/27 5 / 33

6 Introduction Contribution This paper constructs a parsimoneous neoclassical growth model with young and old adults quantitatively decomposes Japanese growth into the effects of population aging productivity government distortions Otsu & Shibayama (Kent) Aging 12/27 6 / 33

7 The Postwar Japanese Economy Demographic, Productiviy and Government Variables 0.65 Demographics Productivity aging population growth Fiscal Policy 77 Workweek Policy government consumption labor tax c apital tax Figure: Exogenous Variables Otsu & Shibayama (Kent) Aging 12/27 7 / 33

8 The Postwar Japanese Economy Aging and Decline in Employment Rate 0.7 Data Projected Figure: Aging Effect on Employment Share Otsu & Shibayama (Kent) Aging 12/27 8 / 33

9 Model Overview Representative household consists of young and old adults (no kids) a fraction η t are young and have high employment rate π y a fraction 1 η t are old and have low employment rate π o head of household allocates resources among the family The number of households N t increases over time at the rate n t Firm hires labor and capital to produce output Government taxes the household by labor and capital income tax and lumpsum tax Otsu & Shibayama (Kent) Aging 12/27 9 / 33

10 Model Household Problem Preferences U = max t β t [ Ψ ln c t + e t (1 Ψ) ln ( h t h t )], (1) where Budget constraint e t = η t π y + (1 η t ) π o c t + i t = (1 τ l,t ) w t h t e t + (1 τ k,t ) r t k t + ζ t, (2) Capital law of motion (1 + n t )k t+1 = i t + (1 δ)k t, (3) Otsu & Shibayama (Kent) Aging 12/27 10 / 33

11 Model Household Problem Weekly leisure of the workers (e t ) where therefore leisure t = ψ ln(rest t ) + (1 ψ) ln(weekend t ) rest t = (ω ω t ) workweek t weekend t = ω (7 workweek t ) leisure t = ψ ln ( h t h t ) + (1 ψ) ln (ω (7 workweekt )) where h t = ω workweek t, h t = ω t workweek t weekend is exogenous and does not affect choices (due to seperability) Otsu & Shibayama (Kent) Aging 12/27 11 / 33

12 Model Firm Problem Production Y t = A t Kt θ (h t e t N t ) 1 θ, so π t N t = Y t w t h t e t N t r t K t, or in per family terms π t = y t w t h t e t r t k t. Otsu & Shibayama (Kent) Aging 12/27 12 / 33

13 Model Government Government budget constraint G t = τ l,t w t h t e t N t + τ k,t r t K t ζ t N t. (4) where assume so that G t = g t Y t. (1 g t )y t = c t + i t (5) Otsu & Shibayama (Kent) Aging 12/27 13 / 33

14 Model Equilibirum Equilibirum conditions Ψ c t = µ t 1 Ψ h t h t = µ t (1 τ l,t )w t (1 + n t )µ t = βµ t+1 {(1 τ k,t+1 )r t δ} r t = θ y t k t w t = (1 θ) y t h t e t (1 + n t )k t+1 = i t + (1 δ)k t, y t = A t k θ t (h t e t ) 1 θ (1 g t )y t = c t + i t Otsu & Shibayama (Kent) Aging 12/27 14 / 33

15 Quantitative Analysis Algorithm Shooting algorithm 8 variables {k t+1, µ t, h t, y t, c t, i t, r t, w t },8 equilibirum conditions for specify initial and terminal conditions initial capital = data in 1975 terminal capital = steady state capital given constant productivity growth, taxes etc. after terminal period search for the tragectory of capital that satisfies all equilibirum conditions and the terminal condition Otsu & Shibayama (Kent) Aging 12/27 15 / 33

16 Quantitative Analysis Calibration Table 7. Parameter Values θ Capital Income Share β Subjective Discount Factor δ Capital Depreciation Rate Ψ Preference Weight Otsu & Shibayama (Kent) Aging 12/27 16 / 33

17 Quantitative Analysis Benchmark Simulation Output 47 Hours Worked data 3 benchmark model Consumption Investment Figure: Simulated Variables: Benchmark Otsu & Shibayama (Kent) Aging 12/27 17 / 33

18 Quantitative Analysis Counterfactual Simulation: Constant Demographics Output 45 Hours Worked 5 benchmark model constant aging constant population growth Consumption Investment Figure: Simulated Variables: No Demographic Transition Otsu & Shibayama (Kent) Aging 12/27 18 / 33

19 Quantitative Analysis Counterfactual Simulation: Constant Productivity Output 46 Hours Worked 4.6 benchmark model constant productivity Consumption Investment Figure: Simulated Variables: Constant Productivity Otsu & Shibayama (Kent) Aging 12/27 19 / 33

20 Quantitative Analysis Counterfactual Simulation: Constant Fiscal Policy Output 46 Hours Worked benchmark model constant government consumption 45 5 constant labor tax constant capital tax Consumption Investment Figure: Simulated Variables: Constant Fiscal Policy Otsu & Shibayama (Kent) Aging 12/27 20 / 33

21 Quantitative Analysis Counterfactual Simulation: Constant Workweek Output 45 Hours Worked benchmark model 5 constant workweek Consumption Investment Figure: Simulated Variables: Constant Workweek Otsu & Shibayama (Kent) Aging 12/27 21 / 33

22 Quantitative Analysis Summary Productivity growth is by far the most important driver of growth Population aging increases hours worked but reduces total labor and hence output by 8.4% Population shrinking reduced capital dilution and increased output by 5.9% Government consumption increased otuput by 3.9% Labor income tax reduced output by 8.1% Workweek shortening reduced output by 9.6% Otsu & Shibayama (Kent) Aging 12/27 22 / 33

23 Population Aging and Structural Transformation Data Nominal Expenditure Ratio Relative Price Figure: Structural Change Data Otsu & Shibayama (Kent) Aging 12/27 23 / 33

24 Population Aging and Structural Transformation Overview Representative household consumes goods and services old relatively prefers services more than young government subsidizes service consumption Firm produces goods and services Government taxes the household by labor and capital income tax and lumpsum tax and subsidezes service consumption Otsu & Shibayama (Kent) Aging 12/27 24 / 33

25 Population Aging and Structural Transformation Household Consumption c y,t = c o,t = (ω 1 ε y c ε 1 ε (ω 1 ε o c ε 1 ε yg,t + (1 ω y ) 1 ε c ε 1 ε ys,t og,t + (1 ω o ) 1 ε c ε 1 ε os,t ) ε ε 1, ) ε ε 1, Budget constraint η t (c yg,t + (1 s y )p t c ys,t ) + (1 η t )(c og,t + (1 s o )p t c os,t ) + i t = (1 τ l,t ) w t h t e t + (1 τ k,t ) r t k t + ζ t, Otsu & Shibayama (Kent) Aging 12/27 25 / 33

26 Population Aging and Structural Transformation Firms Production y g,t = A g,t k θ g,t (h g,t e g,t ) 1 θ, y s,t = A s,t k θ s,t (h s,t e s,t ) 1 θ. Relative price of services p t = A g,t A s,t. Otsu & Shibayama (Kent) Aging 12/27 26 / 33

27 Population Aging and Structural Transformation Government Government budget constraint G t = S t + G t = τ l,t w t h t e t N t + τ k,t r t K t ζ t N t. where S t = η t s y p t c ys,t + (1 η t )s o p t c os,t. Otsu & Shibayama (Kent) Aging 12/27 27 / 33

28 Population Aging and Structural Transformation Quantitative Exercise Table 8. Parameter Values II ε Consumption Elasticity 0.3 ω y Preference Weight Young 0.55 ω o Preference Weight Old 0.2 s y Subsidy Rate Young 0.1 s o Subsidy Rate Old 0.25 Otsu & Shibayama (Kent) Aging 12/27 28 / 33

29 Population Aging and Structural Transformation Quantitative Exercise Nominal expenditure share ( p t c s,t c g,t = 1 s η o t 1 s y ( ωo 1 ωo ((1 s o )p t ) ε 1 +1 ωy + 1 η 1 ωy ((1 s y )p t ) ε 1 +1 t ) 1+ η 1 ωo ((1 s ωo o )p t ) 1 ε t 1+ 1 ωy ωy where p t and η t from data ((1 s y )p t ) 1 ε + 1 η t ) p t ( ωo 1 ω o ((1 s o )p t ) ε). Otsu & Shibayama (Kent) Aging 12/27 29 / 33

30 Population Aging and Structural Transformation Quantitative Exercise Subsidy share of government consumption φ t = S t C t C t G t where S t C t = η t s y 1 s y ω y 1 ω y ((1 s y )p t ) ε 1 s o 1 +(1 η t ) 1 s o 1 + ω o 1 ω o ((1 s o )p t ) ε 1. and C t G t from data Otsu & Shibayama (Kent) Aging 12/27 30 / 33

31 Population Aging and Structural Transformation Quantitative Exercise 1.5 Nominal Consumption Ratio 0.35 Government Subsidy Share Data Benchmark No Aging Data Benchmark No Aging Figure: Structural Change Simulation Otsu & Shibayama (Kent) Aging 12/27 31 / 33

32 Conclusion A parsimoneous model can capture the effects of demographics, government policy and productivity Population aging harms growth through decline in labor participation increase in social security tax burden Population aging contributes to structural transformation by increasing the share of services relative to goods increase in government expenditure Otsu & Shibayama (Kent) Aging 12/27 32 / 33

33 Extensions OLG?: intertemporal inequality Non-separable utility?: intratemporal inequality Variable employment rate?: should amplify the result Population aging and productivity?: endogenous growth? Otsu & Shibayama (Kent) Aging 12/27 33 / 33