B3.2 Government Deficits

Actual data from the System of National Accounts (SNA) are used through 2002, these being the latest data available at the time of writing. The actual growth rate of outstanding government debt was 6.57 % in 2002. From 2003, government debt has been calculated based on the following assumptions. Until 2013, the growth rate of outstanding government debt is maintained at 0.5 %, decreasing from 6.57 %. From 2014, the growth rate decreases at 0.1 % through 2023. From 2024, the ratio of outstanding government debt to GDP is assumed to be constant.

B1 Aging rates (Source

Fig. 7.B1 Aging rates (Source: NIPSSR 2002)

Under these assumptions, the ratio converges to a new steady-state level of 176 %, which is the benchmark case shown in Table 7.B1. The actual gross level of the GDP ratio in 2002 is 114.30 %.

B3.3 The Social Security System

Actual data have been used until 2002. From 2003, the total amount contributed to social security is assumed to be used to finance both schemes. In the actual system, the public pension contribution (the long-term contribution) and the public health insurance contribution (the short-term contribution) are typically collected together as the social insurance contribution. The contribution rate is assumed in order to satisfy the budget constraint, where the target level of the pension fund is exogenously given. The replacement rate was calculated from the SNA, and actual values are used until 2002. From 2003, the ratio is assumed to be fixed at the same rate of that in 2002, which is 54 %.

An aging population affects the endogenous determination of the contribution rate through two channels. One is the defined-benefit public pension scheme. If the current scheme does not change in the future, then an aging population will have to increase the contribution rate in order to maintain the same amount of per capita benefits in the future. The other channel is through public health insurance.

It is assumed that the public pension scheme is maintained at the same level as that of 2002 in the benchmark case in the sense that the scheme provides the same level of per capita benefits in the future. In terms of the amount of a public pension fund, actual data are used until 2002. From 2003, the amount of the fund is assumed to be fixed at the same level as in 2002 in the benchmark case. As explained in the case study of this chapter, it seems more plausible to assume that the 2004 reform will not occur in the 2020s. Thus, in the benchmark case we assume that the per capita benefits will be fixed in the defined-benefit system in the future. Additionally, the effect of the public pension reform in 2004 on the defined-contribution system is investigated below.

Through 2002, actual per capita benefits at each age were calculated. These show a U-shaped profile on age. From 2003, it is assumed that the U-shaped pattern does not change. However, because of an aging population, the ratio of public health insurance benefits to GDP increases gradually.

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