Population Aging, Fertility and Social Security PDF
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Population Economics Akira Yakita Population Aging, Fertility and Social Security Population Economics Editor-in-chief KlausF.Zimmermann PrincetonUniversity USA UNU-MERIT Maastricht,TheNetherlands ManagingEditor AlessioJ.G.Brown UNU-MERIT Maastricht,TheNetherlands SeriesEditors AlessandroCigno UniversityofFlorence Florence,Italy ErdalTekin AmericanUniversity WashingtonD.C.,USA JunsenZhang TheChineseUniversityofHongKong Shatin,HongKong More information about this series at http://www.springer.com/series/2190 Akira Yakita Population Aging, Fertility and Social Security AkiraYakita SchoolofEconomics NanzanUniversity Nagoya,Japan ISSN1431-6978 PopulationEconomics ISBN978-3-319-47643-8 ISBN978-3-319-47644-5 (eBook) DOI10.1007/978-3-319-47644-5 LibraryofCongressControlNumber:2016963232 ©SpringerInternationalPublishingAG2017 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. 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Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Preface Populationagingandfertilitydeclinesarecommonlyobservedindevelopedcoun- triesandwillbesoonerorlaterindevelopingcountries.Forexample,inJapan,the speed of population aging is particularly high, involving rapid extensions in life expectancy and low fertility rate in the past several decades. The demographic changes not only cause economic issues in economic societies but also affect the appropriateness of economic policies. Individuals may prepare for longer retire- ment periods by saving more, although unfunded social security tends to induce individuals to save less than without social security. Public pensions based on a pay-as-you-go finance system may face severe risks of bankruptcy. Population aging even in one country will also affect other countries. Differences in savings behaviorsamongcountrieswithvariousdemographicstructuresalterthedirections of international capital mobility and thereby result in international inequality of incomedistributionamongcountries.Indeed,consumptionduringlongerlifetimes mayaffecttheenvironmentalqualityglobally. Inthisbook,Iwilladdresstheseissuescausedbydemographicchanges,giving particularattentiontofertilitydecisionsofindividualsfacingexpandinglifeexpec- tancy. The theoretical framework I employ in this book is anoverlapping genera- tionsmodel,amodelwhichiswellknowntobesuitedtoexploringmanyaspectsof economicbehaviorsofindividualsandtheeconomyasawhole. This book builds in part on the research papers published in journals, some of whichIcoauthoredwithMakotoHirazawaand/orKojiKitaura.Whilemymaster’s thesis was on life insurance and savings behaviors of individuals, a clue of my research on population aging was an article that appeared in the Journal of Popu- lationEconomicsin2001.Themotivationbehindthisbookistogiveanoverview on research topics in population aging and fertility based on some of my existing researchandgivinginsightintonewfindings.Doingsoallowedmetogiveamore comprehensiveviewofthedemographicchangesandachievebetterunderstanding of the issues. I have also benefited much from earlier joint works with Makoto v vi Preface HirazawaandKojiKitaura.Inparticular,Chap.5isbasedonanunpublishedwork withMakotoHirazawa,whoalsoprovidedvaluablecommentsandsuggestionson anearlierdraftofthisbook.Iammuchindebtedtoallofthem. Asforthepast,IgreatlythankProfessorsKikuoIwataandKiyokazuTanakaat SophiaUniversity,whoencouragedmetogoontoagraduateschoolofEconomics. Professor Masaichi Mizuno, who was my supervisor at the Nagoya University Graduate School of Economics, guided me at various stages of life both formally andprivately.IamalsoindebtedtoProfessorNobuhiroOkuno,whoshowedmea way to formulate and shape ideas when I was a graduate student of Nagoya University, and Professor Michio Morishima gave me thoughtful advice on research activities during my stay at the London School of Economics and the UniversityofEssex.Withoutmeetingtheseprofessors,Icouldnothavepublished thisbook. With regard to the specific topics in this book, I have been helped by many colleaguesandfriends.MyheartfeltthanksespeciallytoYukoArayama,Davidde laCroix,KoichiFutagami,ToshihiroIhori,Juni-ichiItaya,MurrayC.Kemp,Yukio Ohtashiro-Karasawa, Ryuta Kato, Hideki Konishi, Noritaka Kudo, Tatsuaki Kuroda, Fabio Mariani, Lex Meijdam, Kazuo Mino, Kazutoshi Miyazawa, Miki Murata, Akira Momota, Hisahiro Naito, Tetsuya Nakajima, Ryoji Ohdoi, Hikaru Ogawa, Kazumasa Oguro, Tatsuya Omori, Yasuyuki Osumi, Tomoya Sakagami, SawakoShirahase,KenTabata,BasvanGroezen,TadashiYagi,ShinjiYamashige, Masayoshi Yanagihara, Masaya Yasuoka, and Masatoshi Yoshida for their heart- warmingcommentsandsuggestionsonmyearlierworks.Ialsowouldliketothank my colleagues and friends at Fukuoka University, Mie University, Chukyo Uni- versity,theUniversityofTsukuba,NagoyaCityUniversity,andNanzanUniversity fortheirhelpandsupportduringmytenureofoffice. Thepapersthatthechaptersarebasedonwerepresentedatvariousconferences, seminars, and workshops. Valuable comments that are gratefully acknowledged were provided by participants at seminars in Chukyo University, Hokkaido Uni- versity, the Kansai Macroeconomics Workshop, the University of Tsukuba, the ChubudivisionoftheJapanSocietyofHouseholdEconomics,NagoyaMacroeco- nomicsWorkshop,theJapanAssociationforAppliedEconomics,theAssociation for Public Economic Theory (PET), the Demographic Transition and Public Finance Workshop, the Japanese Economic Association, the Japanese Economic PolicyAssociation,theEuropeanEconomicAssociation,DoshishaUniversity,the University of Hyogo, the Institute of Statistical Research (Tokyo), Osaka City University,andtheAppliedRegionalScienceConference.IamgratefultoProfes- sor Cigno, the editor of the book series Population Economics, for his support duringthecompilationofthisvolume.IamalsogratefultoallatSpringerfortheir generouscollaborativeeffortinproducingthefinalproduct. Financial support from the Japan Security Scholarship Foundation (Nihon ShokenShogakuZaidan),thePostalLifeInsuranceFoundation,theJapanSociety Preface vii for the Promotion of Science (KAKENHI Grant Nos. 18530127 and 25285091), andtheGakujutsushinkouNomuraKikinisalsogratefullyacknowledged. Finally, my greatest thanks go to my wife and children, Yuko Yakita, Sayaka Tsuchihashi,andYutakaYakita,whosupportedmeateverystageofmylife. YagotoIshisaka,Japan AkiraYakita August2016 Introduction and Overview Worldwideincreasesinlongevityduringthelastfewdecadesarewelldocumented in numerous studies (e.g., World Bank 1993). Recent increases in longevity, especially in developed economies, are due to declines in the adult and elderly mortalityratesratherthanininfants(e.g.,LeeandTuljapurkar1997).Bloometal. (2014)assertedthatincreasesinlifeexpectancyareassociatedwithgeneralhealth improvements in the form of reduction in morbidity, while Manton et al. (2007) showedthattheestimatedlifeexpectancygrewataboutthesamerateasactivelife expectancy from 1935 to 1982 for ages 65 and over in the USA. The increased lifetimelongevityisoftenassociatedwithdeclinesinthefertilityrate,inparticular, inthe developedcountries. Both increasesinthe life expectancyand decreasesin fertilitycausepopulationaging,whichhasshiftedtheagedistributiontowardolder populations, and may have significant impacts on economic growth and intergenerationaldistributionofincome. Incontrast,accordingtoTheWorldPopulationProspects,The2012Revision,of the United Nations, currently the population of the less developed regions is still young,withchildrenundertheageof15accountingfor28%ofthepopulationand youngpersonsaged15–24accountingforafurther18%inthesecountries,whereas childrenandyouthaccountfor16%and12%ofthepopulation,respectively,inthe more developed regions. The number of people in the main working ages, from 25 to 59 years, is expected to decline even for the next 40 years in the more developed regions, whereas it will continue rising in the less developed regions. Theyoungpopulation inthe lessdeveloped countries posesamajorchallengefor their countries, which are faced with the necessity of providing education and employment to large cohorts of children and youth. The situation in the least developed countries is even more pressing. The demographic changes also affect thepolicydecisionsofthecurrentgovernment. The aim of this book is to examine the effects ofpopulation aging onnot only thedomesticbutalsoglobaleconomyaswellastheireconomicpoliciesfromvarious aspects.Inthefollowingchapters,weuseanoverlappinggenerationsmodel,whichhas been introduced by Samuelson (1958) and Diamond (1965) and then developed by ix x IntroductionandOverview manyauthors;amodelisconsideredtobeappropriateforconsideringintergenerational incomedistributionaswellasintertemporalresourceallocation.Themodelisappro- priatelyvariedsoastobesuitablefortopicsineachchapter. PartIisconcernedwiththeeffectsofpopulationagingonfertility,inflation,and retirementdecisionsofindividuals.Chapter1examinestheeffectsofanincreasein life expectancy on the fertility rate and the lifecycle savings rate in a simple endogenous growth model. When changes in life expectancy affect fertility deci- sionsofindividuals,populationagingisacceleratedinthesensethatthefractionof retireesinthetotalpopulationwillbeenlarged.InChap.2,assumingtwoassetsof moneyandtheclaimsonphysicalcapital,weexaminetheeffectofanincreasein lifeexpectancyonportfoliochoicesofindividualsbetweenthesetwoassets.Money is introduced based on the money-in-the-utility-function approach. With capital externalitiesasanengineofgrowth,changesinportfoliosofindividualsaffectthe economicgrowthrate.Chapter3examinestheeffectofincreasesinlifeexpectancy on fertility decisions of individuals if they can work in their old age by using the extendedlifecyclemodel(cid:1)alaFeldstein(1976,1977)andHu(1979).Ifindividuals can complement consumption with the elderly labor supply in old age, they can appropriatemoretimeforchild-rearinginyoungageratherthanearningandsaving wageincomeforconsumptionduringretirement. Part II focuses on the pay-as-you-go (PAYG) social security. First, Chap. 4 examinesthelong-termeffectsofPAYGsocialsecurityonfertilityandthewelfare of individuals, assuming that childcare services are available in the market. The availabilityofmarketchildcareservicesexertspositiveeffectsonfertilitydecisions of parents, and a greater number of younger generations work in the market and contribute more to the social security system. On the other hand, a PAYG social security will negatively affect capital accumulation of the economy through consumption-savings behaviors of individuals. Chapter 5 examines the effects of changes in the eligibility age on balanced growth and inflation rates through the adjustments of portfolio choices of individuals, assuming that individuals have to hold money for consumption during the earlier years of retirement before the eligibility age for public pensions [i.e., the cash-in-advance (CIA) constraint]. There are still countries which have institutional or compulsory retirement age, although some Anglo-Saxon countries have recently abandoned it. In such coun- tries,therecanbeanestrangementbetweentheseages.Then,inChap.6,incorpo- rating heterogeneity in preference to having children in a small open economy model, we examine the effects of changes in the size of PAYG social security on fertility choices of individuals and population growth of the economy. In this chapter, we focus on the differences in fertility rates under two benefit schemes ofproportional-to-contributionoruniformbenefits.Chapter7analyzestheeffectof the benefit scheme reform from flat-rate benefits to proportional-to-contribution benefits of PAYG social security on the elderly labor supply. The elderly labor supplyisexpectedtomitigatethefinancialpressureonthesocialsecuritybudgetin populationagingeconomies.Chapter8investigatestheeffectsofanunanticipated expansioninthelengthofretirementperiodonplannedbequeststotheiroffspring inanoverlappinggenerations model with bequestmotivesanduncertainlifetime.
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