English Papers

This page lists my papers (or with coauthors) written in English. Click the title for more information.

My page on IDEAS may be helpful.

Discussion Papers



This section lists my forthcoming papers.

Discussion Papers

This section lists my unpublished papers.

Does the Dynasty View Help to Explain Japan's High Saving Rate?

KIER Discussion Paper No. 400, April 1994

Hayashi (1986) emphasizes the role of altruistic linkages in Japanese households and the resulting intergenerational trasfers in explaining Japan's high saving rate. This paper examines the role of the dynasty view itself in the explanation of Japan's saving rate, by comparing the applicability of the combination of the pure Life Cycle Hypothesis and the reconstruction hypothesis with Hayashi's theory. The paper employs comparable models of dynasty and selfish economies with 2-period and 55-period overlapping generations. The paper focuses on whether they replicate two empirical observations of Japanese saving behavior.

First, can they produce the high asset accumulation pattern? Our finding is that the selfish economy does not perform poorly under the reconstruction hypothesis compared to the dynasty economy. The really importnat piece of the story is the reconstruction hypothesis, not the dynasty view. This suggests that the role of altruistic linkages in the puzzle of the Japanese high saving rate has been exaggerated.

The second focus is the implications of simulation models for the shape of the cross-section age-consumption profile. The age-consumption profile derived from our models is not supportive of the dynasty view. The selfish economy does not show a visible cohort effect. Under the reconstruction hypothesis, the high income growth due to capital deepening is associated with a high interest rate. Furthermore, it is shown that the shape of the cross-section age-consumption profile is steeper in the selfish economy than in the comparable dynasty economy with positive bequests. Given the fact that Japan has a steeper age-consumption profile than other countries, this suggests that Japanese households are less likely to be altruistically linked.


This section lists my publications.

A Reappraisal of the Incidence of Employer Contributions to Social Security in Japan

(with Junya Hamaaki) Japanese Economic Review, Vol. 61, No. 3, September 2010, pp. 427-441.

This paper reappraises Tachibanaki and Yokoyama (2008) --an empirical analysis that indicates no apparent backward shifting of employer social insurance contributions--by modifying their empirical strategy. First, we attempt to control for a spurious positive correlation between wages and employer’s contribution rates by trend variables. Second, we exclude two industries from our sample that have small numbers of workers and establishments to remove sampling errors in wages. Our results imply that the social insurance burden shifts back on to employees to a certain extent, contrary to Tachibanaki and Yokoyama (2008). Our finding is consistent with other existing studies.

On the Consumption Insurance Effects of Long-term Care Insurance in Japan: Evidence from Micro Household Data

(with Miki Kohara and Makoto Saito) Jorunal of the Japanese and International Economies, Vol. 24, No. 1, March 2010, pp. 99-115.

Using micro-level household data in the 2001 Comprehensive Survey of the Living Conditions of the People on Health and Welfare as compiled by the Japanese Ministry of Health, Labor and Welfare, this paper examines how having a household member in need of long-term nursing care can result in welfare losses measured in terms of consumption. In doing so, the study evaluates the role of the public long-term care insurance scheme implemented in Japan in April 2000. The results indicate that when households included a disabled family member, household consumption net of long-term care costs did not decrease as much as before the introduction of long-term care insurance. When compared with the surveys conducted in 1995 and 1998, the adverse effects on consumption net of long-term care costs have became much weaker. These findings suggest that the introduction of social insurance in 2000 helped to reduce the welfare loss associated with having a disabled family member.

Prefunding Health and Long-term Care Insutrance

(with Tadashi Fukui) Public Policy Review, Vol. 5, No. 2, November 2009, pp. 255-286 (PDF file on the MOF site).

Social security costs increased against the aging population and low fertility rate is a major issue to consider. Fukui and Iwamoto (2006) projected health care and long-term care costs through 2100 in a bid to look into the social security finance problem from a longer-term perspective, which the MHLW projection does not cover. They also estimated lifetime premium and tax contributions by generation to show that later generations will have to pay fast-increasing contributions if the pay-as-you-go scheme is maintained for the health care and long-term care insurance system. Furthermore, the authors provide a simulation for the introduction of funded health care and long-term care insurance systems.
Fukui and Iwamoto (2006) refrained from simulating a policy to curb social insurance benefits. This paper first analyzes how the 2005 long-term care insurance reform and the 2006 health care system reform affect discussions in Fukui and Iwamoto (2006). A simulation is provided based on updated population projections as released by National Institute of Population and Social Security Research in December 2005 to consider how changes in demographic factors would affect the health and long-term care insurance finances.
A difficult problem at the time of the introduction of the funded insurance systems is an increase of premium rates which may have to be levied to accumulate reserves during transition period. The combination of health care and long-term care insurance premiums during a transition to the funded systems was estimated to decline by 2.13 percentage points or 16.8% from 12.7% before the reforms to 10.51%. Although the transition to the funded systems is expected to require an increase in burdens, the reforms are estimated to reduce the increase considerably.
A decline in fertility rate estimated in the updated projections should contribute to raise a peak premium rate by 3.12 percentage points under the current balanced-budget scheme for the health care and long-term care insurance systems. A premium hike during the transition to the funded systems is estimated to be limited to 1.23 percentage points, indicating the funded systems may absorb some of demographic fluctuation risks. In a comparison of lifetime burden rates under the balanced-budget and funded systems indicated that a decline in burdens on future generations through the transition to the funded systems, the difference may be greater under the latest population projections.
We considered three alternatives for prefunding accounts – individual savings accounts, program-by-program group savings accounts and a single savings account which would cover all programs. Since the objective of the policy is to secure equal access to health care and long-term care services, the system must include an income redistribution mechanism to realize compulsory participation and flat benefits. It is difficult for individual or group accounts to provide such income redistribution. If funded individual accounts are adopted, it may be difficult to change premiums in line with future projection revisions. The creation of a single savings account for a new system to integrate all existing health care insurance programs may require high transition costs. A conceivable reform with less costs is created as a financial adjustment account as proposed in Iwamoto (1996). The account may be designed to perform both risk management and prefunding.

International and Intergenerational Aspects of Capital Income Taxation in an Endogenously Growing World Economy

(with Akihisa Shibata) Review of International Economics, Vol. 16, No. 2, May 2008, pp. 383-399.

This paper discusses how capital income taxation affects economic growth and welfare in an endogenously growing world economy with perfect capital mobility, worldwide externalities and overlapping generations. Worldwide externalities provied a mechanism for equalizing national growth rates even with perfect capital mobility and different capital income tax rates. The welfare of future generations is more influenced by the change in the growth rate than by the international spill-over effect which has been the primary concern of the previous studies of exogenous growth models. In contrst to the international conflicts caused by the source tax reform in the exogenous growth models, our model finds intergenerational conflicts arising from the change in the growth rate caused by a change in the source tax rate of the foreign country.

Policy Options for Financing the Future Health and Long-term Care Costs in Japan

(with Tadashi Fukui) Takatoshi ito and Andrew Rose eds., Fiscal Policy and Management in Ease Asia, Unviersity of Chicago Press, pp. 415-442

As the Japanese population structure changes, health care and long-term care costs will steadily increase. The current style of financing (pay-as-you-go) will create a large increase in future burden of these costs. This paper studies an alternative policy that prefunds the social insurance benefits for the elderly.

During a transition process, the proposed scheme maintains a higher contribution rate in order to accumulate sufficient funds. Under our baseline scenario, the sum of the contribution rates toward health insurance and long-term care insurance increases from 5.06 percent of earnings to 12.41 percent of the same. The rate of increase in overall burdens, including taxes and subsidies, is 63 percent.

Our sensitivity analysis has shown that the quantitative implications of the increase in total burdens depend on social cost scenarios, the labor force, and the interest rate. However, labor force scenarios do not have a considerable impact on the rate of burden. As against this, the setting of social costs has a significant impact on the same.

Even under the most optimistic scenario, the rate of increase in total burden is 34 percent. Even though we cannot predict the exact amount of the necessary contribution rate that is capable enough to transfer the funded system, what we are sure of is that a significant increase in the contribution rate is inevitable.

Interaction between Monetary and Fiscal Policy and the Policy Mix

The Effectiveness of Stabilization Policies: The Bank of Korea International Conference 2005, Seoul: Bank of Korea, 2005, pp. 149-183 (Discussion paper version, PDF file).

Interactions between monetary and fiscal policy depend on the specification of policy variables that fiscal policy uses. However, a general rule is that when monetary policy is capable of dealing with sticky price adjustment, a primary concern of fiscal authority should be to remedy the resource allocation. My regression study using cross-country data shows that in a majority of OECD countries fiscal policy relies on the automatic stabilizer Japan is a unique case in that it relies heavily on discretionary fiscal policy. However, Japanese policymakers have recently changed their thinking regarding fiscal policy.

Monetary and Fiscal Policy to Escape from a Deflationary Trap

Bank of Japan Monetary and Economic Studies, Vol. 23, No. 1, February 2004, pp. 1-46. (PDF file on the BOJ site)

This paper provides a theoretical overview of monetary and fiscal policy with the potential to engineer an exit from a deflationary trap, which we define here as sustained deflation in the presence of zero interest rates. We find that the required policy steps are an interest rate hike, a commitment to future currency growth, and a money-financed tax cut. The amount of tax cut required is equal to the increase in the central bank's payments to the treasury resulting from the higher inflation rate (nominal interest rate), while fiscal policymakers must maintain fiscal discipline by stabilizing government debt and the primary balance. There will be a temporary fall in output when prices are sticky, but this is the price that must be paid to conquer deflation.  The current commitment to quantitative easing is based on the assumption that the natural interest rate has temporarily declined. If the economy is in a deflationary trap, however, the continuation of zero interest rates reinforces deflationary expectations and may make it perpetually impossible to eliminate deflation. Even under conditions in which the natural rate of interest looks to be positive, if deflation persists, it is probably wise to consider a policy approach that assumes deflationary trap conditions. With this in mind, we believe the conditions required for abandoning the current policy regime should include, in addition to consistently positive growth in the CPI, a consideration of the trend in real GDP.

Issues in Japanese Health Policy and Medical Expenditure

Toshiaki Tachibanaki ed., The Economics of Social Security in Japan, Edward Elger, pp. 219-232.

This paper first discusses the past patterns of the national medical care expenditure and its future path. About 30 percent of the past growth was due to population aging and the remaining 70 percent was due to technological change. The medical expenditure is expected to increase by about 20 percent in 20 years due to population aging.

The latter half of the paper focuses on a reform plan of the health insurance for the elderly and presents some policy recommendations. One of the most serious problems in the health care market is that virtually no agents evaluate the quality of medical services or help improve it. It has not been clarified whether the rising medical costs are the result of waste or of necessity. Reform should attempt to make insurers play a more active role in the health care market as informed agents of patients. Dramatic outsourcing of the health insurance business to the private sector should be promoted.

The  Fiscal Investment and Loan Program in Transition

Journal of the Japanese and International Economies , Vol. 16, No. 4 , December 2002, pp. 583-604.

This paper discusses the adequacy of the activities of the Fiscal Investment Loan Program agencies after the fundamental reform in April 2001, which disconnected postal savings and public pension reserves from the FILP. It is found that many ideas of justifying the government interventions to the financial sector have now lost their relevancy. The activity of government financial intermediaries should be streamlined. Among infrastructure construction projects, the most serious part of welfare loss lies on national motorway construction, which is estimated to be about 14.5 trillion yen of welfare loss.

Do Borders Matter? Evidence from Japanese Regional Net Capital Flows

(with Eric van Wincoop) International Economic Review , Vol. 41, No. 1, February 2000, pp. 241-269.

Are international borders barriers to capital flows? We use evidence on net capital flows among regions within a country as a benchmark. For this purpose we develop a dataset of saving and investment rates of Japanese prefectures. We find that the correlation between saving and investment rates is higher for OECD countries than Japanese regions in both time-series and cross-sectional data. After controlling for factors that are expected to contribute to a positive correlation in the absence of barriers to capital flows, we conclude that primarily long-term capital flows are hindered by national borders, as reflected in the cross-sectional evidence.

Foreign Tax Credit and the Current Account

(with Akihisa Shibata ) International Tax and Public Finance , Vol. 6, No. 2, May 1999 , pp. 131-148.

This paper provides a general equilibrium analysis of the effects of a foreign tax credit (FTC) provision on current account dynamics of a small, open economy. Because of the asymmetric functioning of FTC, the rate of return on domestic capital is determined by the arbitrage of the marginal investor, the investor in the creditor country. Thus a change in the home country capital income tax trate causes different responses in long-run foreign asset holdings and the current account dynamics depending upon whether the country is a net creditor or debtor and upon whehter the country has a higher tax rate than the foreign country or not.

Japan's Saving Rate Is Indeed Lower Than Professor Hayashi Revealed

Japan and the World Economy , Vol. 8, No. 1, March 1996 , pp.35-41.

Hayashi (1986) found that if Japanese national accounts are adjusted to the US National Income and Product Accounts definition, the apparent gap in the saving rates was substantially reduced. This note shows that his adjustment method can be improved in two ways. First, his treatment of land improvement investment was inconsistent. Second, his deduction of the service flow of government capital from national income is unnecessary. After taking into aacount these problems, this note found that the ratio of Japan's national net saving to Net National Product is up to 0.6 percentage point lower than Hayashi found.

Endogenous Fertility and Ricardian Hypothesis in a Model with Joy of Giving

(with Vijit Kunapongkul and Kazuo Nishimura) The Development of Science for the Improvement of Human Life: Problems of Industrial Economics Under Environmental and Resource Constraints, Proceedings of the II Kyoto-Siena Symposium, September/October 1993, pp.23-36.

Public Pensions and an Aging Population

(with Ryuta Kato and Masahiro Hidaka) Review of Social Policy, No. 2, March 1993, pp.1-10.

Effective Tax Rates and Tobin's q

Journal of Public Economics, Vol. 48, No. 2, July 1992, pp.225-237.

This paper clarifies the relation between the average and marginal effective tax rates using the notion of the change in Tobin's average q . The equation connectiong the effective rates shows that corporate taxation can be represented by a mixture of two extreme tax rules; one being a distorting pure corporate tax and the other a nondistorting cash flow tax. The paper propses new measures representing this feature.

Testing for a Unit Root in Japanese GNP

(with Hideyuki Kobayashi) Japan and the World Economy , Vol. 4, No. 1, May 1992, pp.17-37.

This paper tests for a unit root in Japanese GNP between 1955 and 1987, paying particular attention to the kink in the GNP time series. A careful examination of the kinked point shows that Japanese GNP has a unit root in samples both before and after the kinked point, in contrast to Takeuchi 's (1987) research, which specified the kinked point a priori. In addition, fluctuations in GNP are caused mainly by permanent shocks; transitory shocks play a minor role.

Capital Income Taxation and the Current Account in a Small Open Economy

(with Akihisa Shibata ) Journal of International Money and Finance , Vol. 10, No. 4, December 1991, pp.480-496.

This paper analyzes the effects of capital income taxation on the current, account, nothing the difference between two international tax rules: the residence principle and the source principle. An increase in the residence tax rate reduces foreign asset holdings in the long run and creates a current account dificit. On the other land, an increase in the source tax rate increases long-run foreign asset holdings. Because the King-Fullerton (1984) effective tax rate responds positively to the increase in both taxes, it does not predit the effects of taxation on the direction of international capital investments.

The Japnese Tax Reforn and the Cost of Capital

Ricerche Economiche , Vol. 45, Nos. 2/3, April/September 1991, pp.307-327.

This paper evaluates the economic impact of recent tax reforms conducted in Japan. Due to widespread tax exemption or separate tax provisions for capital income, Japan's tax system was close to the tax-prepayment approach to expenditure taxation before the reforms. The introduction of the consumption tax can be interpreted as an attempt to smooth the stream of revenue by moving to the qualified approach. Elements of the capital income tax reforms reduced the unevenness of tax burdens on assets. However, the reforms of capital income taxes are inconsistent with the qualified approach.

Japanese Corporate Tax Policy and Direct Investment Abroad

Pacific Economic Papers , No. 196, June 1991.

This paper is an empirical study of the effects of Japansese corporate tax on Japanese direct investment behaviour. The Japanese corporate tax burden is discussed in the light of its impact on overseas capital movements. The marginal effective tax rate rose during the 1980s. Using annual data from 1977 to 1987, the paper estimates the Japanese direct investment abroad (DIA) equation, which has a tax variable, into a list of explanatory variables. It is shown that a higher cost of capital or tax wedge increases direct investment outflows by parent company transfer. However, due to a lack of data, DIA with retained earnings cannot be analysed.

Distributional Considerations of Producers' Profit in a Commodity Tax Design Problem

(with Hideo Konishi ) Economics Letters , Vol. 35, No. 4, April 1991, pp.423-428.

This paper derives the optimal commodity tax rule in the presence of pure profit in a setting with many consumers and many firms. The optimal rule depends upon the distributional characteristics of not only commodity consumption but also production activity.

Last Updated: 09/15/10, Yasushi Iwamoto