School of Economics

Macroeconomics, Growth and History Centre (MaGHiC)

About the Centre

The Macroeconomics, Growth and History Centre (MaGHiC) is the focal point for macroeconomic research, events and PhD training at the University of Kent. The research interests of the group span macroeconomic theory, empirical macroeconomics, macroeconometrics and the macroeconomic analysis of historical data. The Centre has strengths in growth, structural change, computational economics, firm dynamics and macroeconomic history.

Researchers within the Centre have published articles in leading international journals including the American Economic Review, the Review of Economic Studies, the Journal of The European Economic Association, the Economic Journal, the American Economic Journal: Macroeconomics, the Review of Economic Dynamics, the Journal of Econometrics and many others.

Tree Rings

Population Aging, Government Policy and the Postwar Japanese Economy

25 July 2018

An Article Image

by Keisuke Otsu, Keio University and University of Kent; and Katsuyuki Shibayama, University of Kent. Discussion paper KDPE 1809, July 2018.

Non-technical summary:

The Japanese economy has gone through important transitions during the postwar period such as the gradual slowdown in economic growth and the steady increase in the share of people aged above 65 years old among the adult population. In this paper we construct a parsimonious neoclassical growth model to quantitatively assess the impact of population aging and various government policies on output growth in Japan over the 1975-2015 period.

We consider several interactions between government policies and population aging. First, labor income tax has been rising steadily as the social security burden of the working age population has increased. Next, population aging tends to decrease employment and increase hours worked per worker in exchange; the workweek reduction policy introduced in the late 1980s is crucial to account for the decline in hours worked per worker during this period. Finally, the composition of fiscal spending has shifted from public investment to medical expenditure as the demand for health care services has risen.

Our main findings are that:

i) the increase in the aged-population share can account for most of the decline in employment and reduced output by 8% from its potential level

ii) workweek shortening policy led to a 20% reduction in output from its potential level by reducing hours worked over the 1988-1992 period

iii) labor income tax led to an 11% reduction in output from its potential level by discouraging hours worked

iv) the shift in the composition of government spending may have caused a slowdown in productivity growth and hence a reduction in the potential output level itself

You can download the complete paper here.




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Last Updated: 15/04/2019