Appended Note 3-6 Outline of General Accounting Estimation

1. Generation

For distributing government outlays and revenues to income and spending of individuals in each generation, we use generation-by-generation income and spending data in the "Family Income and Expenditure Survey" and the "National Consumption Situation Survey" by the Ministry of Public Management, Home Affairs, Posts and Telecommunications. "Individuals" in each generation here mean "households" in each generation.

In consideration of constraints on past data in the "Population Census" by the Ministry of Public Management, Home Affairs, Posts and Telecommunications, we have divided present people into five generations--the 20' s, 30' s, 40' s, 50' s groups, and those in their 60' s and older. The life expectancy for householders is set at 80 years. Every householder is presumed to end his or her life at the age of 80.

2. Estimation of benefits and contributions for present generations

(1) For each year after 1955 from which comparable data are available in the "National Accounts (SNA)," we have calculated generation-by-generation benefits and contributions.

(2) Government receipts and payments in the "National Accounts (SNA) Institutional Sector-Wise Income and Spending Data (General Government)" have been distributed to the generations in accordance with the breakdown of wage-earning households, and generation-wise householder income and expenditure in the "Family Income and Expenditure Survey" and the "National Consumption Situation Survey." We have then estimated benefits and contributions per household for each generation, based on the number of households in the "Population Census."

(3) As for the "National Accounts (SNA) Institutional Sector-Wise Income and Spending Data (General Government)," we have used 93SNA-based real data for years from 1990. For years before 1990, we modified the 68SNA-based data into 93SNA-based data (using the ratio of the 93SNA to 68SNA in the data-overlapping period for each receipt and payment).

(4) Benefits from public fixed capital have been distributed evenly to all households. We have used fixed capital depreciation in the "National Accounts (93SNA)" for calculating macroeconomic benefits for years from 1990. For years before 1990, we have used net government fixed assets, etc. in the "National Accounts (68SNA)."

(5) Fixing Government Receipts and Payments

(a) Government receipts

Taxes on production and imports, taxes on income and assets, social security contributions, other contributions

(b) Government payments

Actual final consumption + goods and services transfers, subsidies, social security benefits, other benefits, savings

(c) Actual final consumption + goods and services transfers have been divided into "education expenditure" and "others." We have estimated "education expenditure based on education expenditure breakdowns in actual social transfers and actual final consumption of purpose-wise general government outlays (Appended Table 7) in the "National Accounts (SNA)." Even with the 68SNA, data have been available since 1970. Therefore, we have used 1970 data for years before 1970.

(d) Social security benefits have been divided into "pensions," "elderly health care benefits" and "other benefits." "Pensions" and "elderly health care benefits" have been based on a table (Appended Table 9) of specifics of transfers from the general government to households in the "National Accounts (SNA)." "Pensions" have been available since 1970 even with the 68SNA of the "National Accounts." For years before 1970, therefore, we have used data for each pension scheme in the "Annual Report on Social Security Statistics" to calculate pensions.

(e) Social security contributions have been divided into "pension premiums" and "others." We have based the calculation of "pension premiums" on the table of social security contribution specifics (Appended Table 10) in the "National Accounts (SNA)."

(6) Proportional distribution to generations

(a) Taxes imposed on production and imports have been distributed to households in proportion to consumption in the "Family Income and Expenditure Survey."

(b) Of taxes on income and assets, those on households have been distributed to households in proportion to direct tax in the "Family Income and Expenditure Survey."

(c) Of taxes on income and assets, those on corporations are deemed to be passed on to individuals through wages, dividends, product prices, etc. and have been distributed to households in the following way:

- Half passed on to factor income of the supply side (A)

- The other half passed on to product prices of the demand side (B)

In accordance with the latest macroeconomic labor share, we have treated 65% of (A) as passed on to wages and distributed that portion to households in proportion to household wage income and the wage income as in the "Family Income and Expenditure Survey." We have treated the remaining 35% as passed on to capital income and distributed that portion to households in proportion to percentages of household-owned financial assets and outstanding savings in the "National Consumption Situation Survey."

Since outstanding savings in the "National Consumption Situation Survey" have been available only since 1974, we have used the 1974 data for years before 1974.

The taxes passed on to product prices (A) have been distributed to households in proportion to household consumption shares and consumption in the "Family Income and Expenditure Survey." (d) We have distributed social security contributions to households in proportion to social security premiums in the "Family Income and Expenditure Survey." Of them, pension contributions have been distributed to generations in proportion to household pensions and pension premiums in the "National Consumption Situation Survey." ⇒ Since pension premiums in the "National Consumption Situation Survey" have been available only since 1984, we have used 1984 data for years before 1984.

(e) We have distributed social security benefits to generations in proportion to household social security benefits and social security benefits in the "Family Income and Expenditure Survey." Of them, pensions have been distributed to generations in proportion to household pension premium contributions and pensions in the "National Consumption Situation Survey."

Since pensions in the "National Consumption Situation Survey" have been available only since 1974, we have used 1974 data for years before 1974.

Of them, elderly health care benefits have been considered to be going to householders aged 60 or more.

(f) Subsidies (subsidies and social assistance benefits in the "National Accounts (SNA)" ) have been distributed to households in proportion to weighted averages based on the number of households for each generation in the "Population Census."

(g) Education spending in actual final consumption + goods and service transfers have been distributed to generations in proportion to household education spending and education spending in the "Family Income and Expenditure Survey."

(h) Other benefits, other contributions and savings have been distributed evenly to households.

(7) Proportional Distribution of benefits from public investment

For years from 1990, fixed capital depreciation in the "National Accounts (93SNA)" has been distributed in accordance with the number of households in each generation. For years before 1990, net fixed assets in the 68SNA-based year-end balance sheet account (general government) have been multiplied by a certain rate of return (the ratio of fixed asset depreciation in the "National Accounts (93SNA)" to net fixed assets in the "National Accounts (68SNA)" for 1990-98) for distribution according to the number of households in each generation.

(8) Modification of wage-earning households' tax contributions

Elderly people' s share of wage-earning householders is very low. If only wage-earning household data alone are taken as representing the national average, therefore, tax contributions may be overestimated. In order to avoid this bias, we have multiplied tax contributions (direct tax) of those aged 60 and above by wage-earning households' share of total households to calculate tax contributions (direct tax) in the "Family Income and Expenditure Survey."

(9) Modification of generation-wise breakdown of households

A breakdown of households extracted from the "Family Income and Expenditure Survey" and the "National Consumption Situation Survey" tends to indicate the number of elderly households as less than in the "Population Census." In order to ease such bias, we have adopted not a sample breakdown in the "National Consumption Situation Survey" or the "Family Income and Expenditure Survey," but a generation-wise breakdown of two-or-more-member households in the "Population Census" to distribute total households for our generation-wise breakdown of households.

(10) Realizing generation-wise benefits and contributions in each year We have used the GDP deflator (100 for the base year of 1999) in the "National Accounts (93SNA)" to realize generation-wise benefits and contributions in each year.

(11) Present value of past benefits and contributions for present generations We have inflated benefits and contributions in and after 1955 by each year' s real interest rate (one-year time deposit rate--CPI deflator growth rate) to determine values in current (1999) prices.

3. Estimation of future benefits and contributions for each generation

(1) We have assumed that the generation-wise benefit and contribution structure for present generations in the latest year (1999) will remain unchanged in future.

(2) We have assumed that benefits per household from public fixed capital will remain constant in and after 2030.

(3) As for public pensions, the government' s share of basic pension costs is presumed to rise from the current one-third to 50% in and after 2004. Regarding the current plan to gradually lift the pension-starting age, we have assumed that the age will be lifted by one every three years for the fixed portion of pensions from 2001 to 2013 and for the other portion proportionate to income from 2013 to 2025.

(4) As for the nursing care insurance as introduced in April 2000, we have assumed that nursing care insurance benefits will all go to the 60-and-older generation. As for contributions, we have distributed one-third of the total nursing care insurance benefits to those aged between 40 and 64 in proportion to wage income in the "Family Income and Expenditure Survey." Those at 65 and more are presumed to contribute one-sixth of the total benefits. Elderly people at 65 and more are presumed to contribute half their premiums in and after October 2000 and the whole in and after October 2001.

(5) As for elderly people' s health care benefits that the nursing care insurance introduction may affect, we have used a decline (-7.0%) in total health care costs for elderly people in FY 2000 to adjust elderly health care benefits per household in the latest year (1999).

(6) Per-household economic growth is presumed at 2% and the expected interest rate at 4%. These rates have been used to adjust future benefits and contributions, as estimated in (1) ~ (5), to present value for the latest year (1999).

4. Estimation of additional contributions to achieve balanced budget in long run

(1) We have based the estimation of the number of households in the future on "Estimated Future Population of Japan" (National Institute of Population and Social Security Research) for up to 2100 and on the presumption that the generation-wise breakdown of households (number of households for each generation / population for each generation) for the latest year (1999) in the "Population Census" will remain unchanged. The number of households is assumed to remain constant in and after 2100.

(2) We have used the per-household benefit and contribution structure for the latest year (1999) and the future number of households as estimated in (1) to calculate the future financial balance for the government. Per-household economic growth is assumed at 2% and the expected interest rate at 4%. These rates have been used to adjust the future government financial balance to current prices for the latest year (1999).

(3) We have used the general government balance sheet account in the "National Accounts (SNA)" to calculate net government assets in the latest year (1999) as "financial assets--debts" at the end of 1999.

(4) The total of (2) and (3) has been assumed as total additional contributions required to achieve a balanced budget in the long run.