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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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This paper explores how corporate income tax reform can help Japan increase investment and boost potential growth. Using international and Japan-specific empirical estimates of corporate tax elasticities, investment is predicted to expand by around 0.4 percent for each point of rate reduction. International consensus estimates suggest further that between 10 and 30 percent of the static revenue loss could be recovered in the long run through dynamic scoring, although Japan’s offset may be closer to the lower bound. Compensating fiscal measures are necessary in light of Japan’s tight fiscal constraints. The scope for base broadening in the corporate income tax is found to be limited and some forms of base broadening will undo positive investment effects of a rate cut. Alternative revenue sources include higher consumption and property taxes. A gradual approach toward lowering tax rates mitigates windfall gains and reduces short-run revenue costs. An incremental allowance-for-corporate-equity system could boost investment with limited fiscal costs in the short run.

Corporations --- Taxation --- Macroeconomics --- Personal Finance -Taxation --- Corporate Taxation --- Business Taxes and Subsidies --- Fiscal Policies and Behavior of Economic Agents: Firm --- State and Local Taxation, Subsidies, and Revenue --- Aggregate Factor Income Distribution --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Corporate & business tax --- Public finance & taxation --- Corporate income tax --- Income --- Personal income tax --- Consumption taxes --- Allowance for corporate equity --- Taxes --- National accounts --- Income tax --- Spendings tax --- Japan

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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