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Japan seems to be turning less Ricardian, a trend set to continue. First, the discount wedge seems to have risen, suggesting that consumers have become more myopic. Second, some evidence points to the possibility that an increasing number of households are liquidity constrained. If these developments continue, the impact of fiscal policy on the economy will gradually rise. While this will facilitate using fiscal policy to manage the economic cycle, it also calls for starting fiscal consolidation soon and in a gradual and steady manner, given the unsustainable public debt and the likely increasing challenges in funding the government's rising debt domestically.

Ricardian Model of International Trade. --- Fiscal policy --- Japan --- Commerce. --- Finance: General --- Public Finance --- Taxation --- Demography --- Macroeconomics: Consumption --- Saving --- Wealth --- Fiscal Policy --- Fiscal Policies and Behavior of Economic Agents: Household --- Debt --- Debt Management --- Sovereign Debt --- Portfolio Choice --- Investment Decisions --- Business Taxes and Subsidies --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Public finance & taxation --- Finance --- Macroeconomics --- Population & demography --- Liquidity --- Consumption taxes --- Public debt --- Aging --- Taxes --- Asset and liability management --- Population and demographics --- Economics --- Spendings tax --- Debts, Public --- Population aging

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Automatic adjustment mechanisms (AAMs)—rules ensuring that certain characteristics of a pension system respond to demographic, macroeconomic and financial developments, in a predetermined fashion and without the need for additional intervention—have been introduced in many OECD countries to tackle public pension schemes’ deteriorating financial sustainability. Incorporating AAMs—in particular linking retirement age to life expectancy—can be an important part of pension reforms in Asia. If implemented early, AAMs could help prevent the need for sharp adjustments in the future, increase the predictability and inter-generational equity of pension systems and enhance confidence.

Pensions --- Pensions. --- Compensation --- Pension plans --- Retirement pensions --- Superannuation --- Retirement income --- Annuities --- Social security individual investment accounts --- Vested benefits --- Labor --- Public Finance --- Demography --- Social Security and Public Pensions --- Nonwage Labor Costs and Benefits --- Private Pensions --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Retirement --- Retirement Policies --- Health: General --- Population & demography --- Labour --- income economics --- Health economics --- Pension spending --- Aging --- Health --- Expenditure --- Population and demographics --- Population aging --- Japan --- Income economics