The implications of a graying Japan for government policy

Japan is in the midst of a demographic transition that is both rapid and large by international standards. As recently as 1990 Japan had the youngest population among the Group of 6 large, developed countries. However, the combined effects of aging of the baby-boomer generation and low fertility rates have produced very rapid aging. Japan now finds itself with the oldest population among the Group of 6 and its population will continue to age at a rapid pace in future years. Aging is already placing a burden on government finances and Japan's ability to confront the negative fiscal implications of future aging is constrained by its very high debt-GDP ratio. We find that Japan faces a severe fiscal crisis if remedial action is not undertaken soon and analyze alternative strategies for correcting Japan's fiscal imbalances. (C) 2015 Elsevier B.V. All rights reserved.