Population Aging, Fertility and Social Security

247 Pages·2017·3.58 MB·English

by  Akira Yakita (auth.)

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
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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.