School of Economics

2018 Discussion papers


School of Economics Discussion Paper 18/09


Population Aging, Government Policy and
the Postwar Japanese Economy


Keisuke Otsu, Keio University and University of Kent
Katsuyuki Shibayama, University of Kent

July 2018


Abstract:

This paper analyzes the Postwar Japanese economy with a parsimonious neoclassical growth model that incorporates the demographic transition in Japan. We find 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.



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Last Updated: 31/07/2018