The Political Economy of Population Aging: Japan and the United States (Advances in Japanese Business and Economics, 30)

This book integrates the economics of aging and insight based on political economy and explores generational conflict in the context of governmental spending. This problem is general, as the Covid-19 pandemic has highlighted: lockdowns protect the elderly, but hurt the young. Policies to address global warming impose taxes on the elderly, but would bring benefits largely in the future. This book addresses intergenerational problems by placing its focus on budget allocation, taxation, and regulation. By using Japanese and US data, the authors conduct statistical analysis of whether regions with aging populations may adopt policies that generate benefits during a short period of time instead of policies that could benefit current young generations for an extended period of time. If the policy preferences of voters depend on their age, and if policy adoption by a government reflects public opinion, the change in demographic composition in a region may affect governmental policies. In an aged society, the elderly are pivotal voters. Budgets may be reallocated from policies favored by younger generations, such as education, to policies the elderly prefer, such as welfare programs. This generates an intergenerational externality problem: voters with short life expectancy do not take into consideration long-term benefits. Moreover, the current tax bases may be replaced by other tax bases that do not harm the elderly. The results reported in the book largely support these hypotheses. Evidence also shows that the gender and racial composition and institutional factors, including the extent of fiscal decentralization, are important in anticipating effects of population aging in other countries. Preface 6 Contents 9 1 Introduction―Population Aging and the Political Economy 11 1.1 Basic Idea 11 1.2 Change in Policy Preferences Throughout Voters’ Life Cycle 13 1.3 Scope of the Analysis 15 1.4 Empirical Issues 19 1.5 Literature Review 20 1.6 Roadmap to This Book 21 Appendix 1 Community Spending and Taxation and Young Worker Migration 24 References 25 2 Infrastructure-Related Expenditures and Population Aging in Japan 26 2.1 Introduction 26 2.2 Literature 28 2.3 Revenue and Expenditure at the Central and Local Government Levels 29 2.4 Data and Estimation Strategy 31 2.5 Estimation Results 33 2.6 Concluding Remarks 40 References 41 3 Effects of Aging on Education and Welfare Expenditures in Japan 42 3.1 Introduction 42 3.2 Literature 43 3.3 An Overview of Education and Welfare Systems 44 3.4 Data and Estimation Strategy 46 3.5 Estimation Results 48 3.6 Concluding Remarks 56 References 57 4 Effects of Aging on Corporate Taxes in Japan 58 4.1 Introduction 58 4.2 Literature 59 4.3 Overview of Corporate Tax Systems in Japan 60 4.4 Data and Estimation Strategy 63 4.5 Estimation Results 65 4.6 Concluding Remarks 69 References 70 5 Effects of the Elderly Population and of Political Factors in the US States 71 5.1 Introduction 71 5.2 Related Literature 72 5.3 Empirical Analysis 73 5.3.1 Data 73 5.3.2 Results 76 5.4 Per Pupil Public Expenditure on Education 83 5.5 Gender Effects 86 5.6 Conclusion 87 References 89 6 The Effect of the Elderly on Taxation and Minimum Wages in the US States 90 6.1 Introduction 90 6.2 Related Literature 91 6.3 The Elderly and the Structure of Tax Revenues 92 6.4 Minimum Wage 96 6.5 Conclusion 100 References 100 7 Conclusion 102 7.1 Generational Conflict 102 7.2 Altruism 103 7.2.1 Parents Care About Their Children 103 7.2.2 Bargaining 103 7.2.3 Children Care About Their Parents 105 7.3 Expressive Voting 105 7.4 Extensions to Other Countries 106 References 106 Index 107