Homework #4: Solution
Ryoichi Imai
2005/02/02
Due: Wednesday, January 19, 2005
Answer to all the questions. Type your answers on A4 papers. At the top of your homework, type your name and e-mail address.
Submit your work to me or leave it in my mailbox, located at the ground level of the International Student Center. Return the textbook to my office.
The numbers in ( ) represent the corresponding pages. Write your answers in your own words. Never copy a large part of the paragraph, even if you do not know the answer.
Answer to the following questions, based on Chapter 6, "The Aging of Society and Fiscal Policy" of Japan's Lost Decade by Hiroshi Yoshikawa.
"While children may be able to renounce the debts left behind by their parents, future generations will not be able to escape the burden of debt from the nation's fiscal deficit." Why is this claim wrong? (165)
The vast majority of Japan's government bonds are held by Japanese citizens and organizations. Our future generation's liabilities are their assets as well.
It is said that the fiscal debts harm future generations' welfare if the economy is in full employment. What does this mean? Why is this claim inappropriate for the present Japanese economy? (166)
If the economy is now in full employment and the government issues bonds to finance public investments, private investments are crowded out by public investments because investments in public sectors take economic resources out of private sectors. However, the present Japanese economy suffers from a serious demand shortage and is not in full employment.
It is said that the fiscal debts harm future generations' welfare if the budget deficit is used to finance consumption or useless public investment. What does this mean? Why is this claim inappropriate for the present Japanese economy? (168)
If debt revenues are used to finance only consumption of the present generation, the future generations will obtain no benefits because nothing useful is left for the latter. However, this argument is misleading in the present Japan, because its major problems are inequities among industries and businesses.
Why does a rise in the public burden ratio have a negative impact on economic growth? State the second reason. (172)
Public pension systems replace more efficient private-sector savings and lowers capital accumulation.
What did Atkinson find? (172)
There is no clear relationship between the public burden ratio and economic growth.
What is the first objective of public medical insurance systems? (175)
It is to ensure that every member of society can enjoy an equivalent quantity and quality of medical services when they become ill.
What is the major change that occurred between 1961 to 1970 in the medical treatment ratio? Why is this so important? (176)
It became much easier and more affordable for the elderly to access medical services. Before 1960s, elderly Japanese refrained from seeking medical services because they were too expensive. The high treatment rate of the Japanese elderly greatly contributed to the long life expectancy.
Why Japan's life expectancy stagnated during the pre-war period? (178)
The Japanese government allocated almost all fiscal expenditures to military forces, and neglected investment in public health such as waterworks, sewage, and medical insurance.
What are the major factors to reduce the Japan's infant mortality rate? (179)
The advance of obstetrical technologies supported the life of premature babies.
The spread of waterworks and sewage facilities reduced the infant mortality rate at hospitals.
The spread of health insurance induced mothers to give birth to their babies not at home but in medical facilities.
What is the more important point of view than the intergenerational equity in the debate of the public pension system? (180)
It is the just distribution of merit to the weaker members of society.
What is the "9 - 6 - 4" problem in the Japan's taxation system? (181)
The "capture rates" of income by tax authorities are different across employment categories. 90% of income of salaried employees are captured by the tax authorities, while 60% for the self-employed and 40% for farmers.
What are the three systems composing the Japan's public pension? (182)
The Employee Pension for private-sector salaried employees.
The Mutual Aid association pension for public servants and school teachers.
The National Pension for farmers, the self-employed, and others.
What is the grave problem of the National Pension, which is similar to the uneven taxation problem? (184)
Citizens covered by the National Pension do not contribute properly to the system. Only two-thirds of individuals make full pension contributions.
What is the author's idea on the public pension reform? (185)
The basic pension benefits should be replaced with equivalent tax measures, and additional pension benefits should be maintained on an income-proportionate basis.
What are the examples of specific measures to implement the structural reform of the nation's entire fiscal policy? (186)
The introduction of tax-payer identification number.
The introduction of an invoice system into the collection of the consumption tax.