2006 Fiscal Year Final Research Report Summary
A study on the effects of budgetary and political transparency on fiscal policy
| Project/Area Number |
17530237
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | Tokyo Institute of Technology |
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Principal Investigator |
KONISHI Hideki Tokyo Institute of Technology, Graduate School of Decision Science and Technology, Professor, 大学院社会理工学研究科, 教授 (50225471)
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| Project Period (FY) |
2005 – 2006
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| Keywords | fiscal adjustment / common agency model / retrospective voting / structure-induced equilibrium / consumption tax / political viability of social security / internal rate of return |
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| Research Abstract |
In this research project, I analyzed the political economy of fiscal policies.
First, I developed a model of political economy that includes interest groups and voters to theorize the decision process of fiscal adjustment. In this model, it is shown that the composition of fiscal adjustments, i.e., spending cuts versus tax increases, plays the role of a signal, which conveys the information of the extent of collusion between interest groups and politicians to uninformed voters and enables them to identify the types of politicians.
Second, I analyzed the politico-economic determination of the composition of revenues to finance social security, constructing a model that focuses on wage taxes and consumption taxes. Owing to the differences in their impacts on income redistribution, those taxes have different political supporters across the generations. Using a two-overlapping generations model, I showed that in a society with a rapid population growth rate there exists a unique structure-in
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duced equilibrium, in which social security is financed only by wage taxes, whereas in a society with a low population growth rate there exist multiple structure-induced equilibrium, in which social security is financed either by wage taxes, by consumption taxes, or by the combination of both taxes.
Third, I analyzed the political viability of the Japanese Employee Pension Program (Kosei Nenkin), using a majority voting framework. More specifically, I made use of the data from Population Statistics, Financial Report on the Public Pension System FY2004,I estimated the internal rate of return of the Employee Pension Program for those of different ages as well as the median age among the stakeholders of the pension system. Then, by comparing the lowest age among those with positive rates of return with the median age, I found that the Japanese Employee Pension Program is politically viable, though its viability is relatively at risk until the middle of 2020's. From this observation, I argued that the forthcoming pension reform should not reduce the internal rate of return facing those of age 30's and 40's Less
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