経済政策・経済思想ユニット

Economic Policy Studies

Unit Members

Issues like mounting fiscal debt and a deteriorating global environment are increasingly threatening the sustainability of our way of life. To deal effectively with these issues, there is a need to rethink the premises on which economics and economic theory currently rest. The Economic Policy Studies unit conducts comprehensive research on economic policy and economic theory, with a focus on issues pertaining to sustainability. Theoretical research, quantitative approaches using computer simulation, and social experiments in conjunction with local governments will be combined in seeking a new research methodology.

Experiments in Future Design

Experiments in future design will be conducted in collaboration with local governments to accumulate data and to contribute to real-life policy formation at the municipal level through the introduction of the perspective of future generations.

Future design is a concept being advanced principally by Tatsuyoshi Saijo that is attracting attention as a way of addressing sustainability-related policy issues that have very long, inter-generational time horizons. Experiments conducted to date have revealed that when residents of a community were assigned to discuss policy options by taking on the role of either the current generation or a future generation, a remarkable difference emerged between the two groups in the arguments advanced and conclusions reached.

The Experiments in Future Design project will verify the accuracy of the observed results using accumulated data and elucidate the mechanisms that prompt “virtual future generations” to think differently from the current generation. The transformed outlook of virtual future generations suggests an endogenous change in cross-generational altruism, a phenomenon that has hitherto rarely been examined. The project will also explore the potentially enormous implications of such behavioral metamorphosis for economic policy.

Project leader: Keiichiro Kobayashi, Research Director, Tokyo Foundation for Policy Research

Project members:
Tatsuyoshi Saijo, Senior Fellow, Tokyo Foundation for Policy Research; Director, Research Institute for Future Design, Kochi University of Technology
Keishiro Hara, Senior Fellow, Tokyo Foundation for Policy Research; Associate Professor, Graduate School of Engineering, Osaka University
Sota Kato, Research Director, Tokyo Foundation for Policy Research
Akio Ino, Research Assistant, Tokyo Foundation for Policy Research

Microsimulation Analysis of Income Tax Reform

Calls are being made to revise Japan’s system of income taxation to ensure neutrality for a broader range of workstyles. The 2017 and 2018 proposals for tax reform issued by the ruling parties included a review of the deduction for a dependent spouse, basic living expenses, and employment and pension income. Many experts, though, have pointed to the need for not just neutrality but also “vertical equity” to promote income redistribution. Analyses of the income redistribution function of Japan’s tax system reveal that it is becoming weaker; this is because while tax deductions are widely available, there are few tax credits. There will thus be a need for continued debate on additional reforms.

Analyses of income tax reforms are usually based on data provided by individual households, and microsimulation methods are used to analyze the potential impact of such institutional changes.

Seeing measures to amend the income tax as natural experiments, this project examines the impact of such reforms on both individual households and the economy as a whole through microsimulation analysis and will broadly publicize its findings. Most analyses to date have relied on cross-sectional data of similar samples to simulate panel studies, but their reliability has remained questionable. This project uses real panel data to analyze household behavior over time, though, and could thus generate new, hitherto unobtainable insights.

The data can be utilized, for example, to run microsimulation models on the tax reforms approved by the cabinet each yearend and to project how those measures are likely to affect various households. The findings, which can be obtained and published almost as soon as the reforms are announced by the government, will offer a timely prognosis for those reforms.

Project leader: Takero Doi, Senior Fellow, Tokyo Foundation for Policy Research

Optimal Level of Government Debt

Japan’s debt-to-GDP ratio today is the highest in the world, hovering around 200%. This has elicited increasingly vociferous calls for stricter fiscal discipline to avert a crisis, such as through higher taxes and spending cuts. Little consideration has been given, however, to how much debt budget planners should actually aim for over the long run. An examination into the optimal level of government debt, viewed from the perspective of future generations, would thus contribute to building a more sustainable society.

This project analyzes Japan’s optimal long-term debt levels using an overlapping-generations model with heterogeneous agents. Inasmuch as government debt represents assets for those who own deficit-covering bonds, the optimal debt level will vary depending on the reason for their purchase. An overlapping-generations model with heterogeneous agents is useful in this regard, as it can account for a range of motives, such as to cushion the financial shock of losing a job or to save up for one’s retirement years.

Even if an optimal level of public debt can be ascertained, actually achieving such a level can be a formidable task, especially if it diverges widely from existing levels. This project will take current debt levels as givens and seek to identify the best transition paths to more optimal, long-term levels.

The adoption of a model utilizing heterogeneous agents will enable an analysis of whether the public will actually support a policy shift in the direction of a more desirable level of public debt. The findings of such analysis will be applied to identify the policy approaches that are most likely to win public support.

Project leader: Keiichiro Kobayashi, Research Director, Tokyo Foundation for Policy Research

Project member: Akio Ino, Research Assistant, Tokyo Foundation for Policy Research

 

Unit Leader

小林慶一郎

Keiichiro Kobayashi

  • RESEARCH DIRECTOR

Unit Members

土居丈朗

Takero Doi

  • SENIOR FELLOW

Keishiro Hara

  • SENIOR FELLOW
猪野明生

Akio Ino

  • RESEARCH ASSISTANT
西條辰義

Tatsuyoshi Saijo

  • SENIOR FELLOW

(Alphabetical order)