Simulating Public Pension Reforms in an Aging Japan: Welfare Analysis with LSRA Transfers

This paper explores the effect of different public pension schemes on economic welfare, and intergenerational and intragenerational equity. Besides the benchmark case based on the 2004 public pension reform, the paper considers two alternative cases: first, the financing of the basic pension benefit by a consumption tax, and second, the elimination of the earningsrelated pension benefit. To distinguish potential efficiency gains or losses from possibly offsetting changes in the welfare of different generations, the paper introduces the Lump Sum Redistribution Authority (LSRA). The simulation results suggest that although consumption tax financing of only a basic pension increases economic output by inducing capital formation, even with LSRA transfers it may not bring about a Pareto improvement.