Appended Note 3-6 Estimation of lifetime benefits and burdens based on the generational accounting method (outline)
- Japanese version
- English version
1. Classification of generations
Using income and expenditure data for households by age group provided by "Family Income and Expenditure Survey" and "National Survey of Family Income and Expenditure" of the Ministry of Internal Affairs and Communications, the government's receipts and payments (revenue and expenditure) are distributed as income and expenditure of households by age group.
The current generations are classified into the five stages of 20s, 30s, 40s, 50s and 60s or above, using units of 10 years due to data constraints of the "Population Census" (Ministry of Internal Affairs and Communications) (in units of 20 years beyond 60s or above). We also set the life span of 80 years for household heads, assuming that all household heads would live at least until reaching this age.
2. Estimation of the current generations' past benefits and burdens
(1) Basic approach
Using "System of National Accounts" (SNA), benefits and burdens for each generation were estimated for each year since 1955, the furthest year that can be retraced.
Specifically, government receipts and payments based on "income and outlay accounts by institutional sectors (general government)" were distributed proportionally using the distribution of wage-earners' household numbers and income and expenditure by age group of household heads in "Family Income and Expenditure Survey" and "National Survey of Family Income and Expenditure." Further, per-household benefits and burdens were estimated on the basis of the number of households in "Population Census." For "income and outlay accounts by institutional sectors (general government)," we used actual figures of 93SNA for years from 1990. For 1989 and earlier years, actual figures of 68SNA were revised on the 93SNA base (This revision was made for each receipt and payment using percentages during the data overlapping period for 93SNA and 68SNA).
(2) Receipt and payment items for the government
1) For items of receipt of the government, taxes to be imposed on production and imports, taxes to be imposed on income, wealth, etc., social security burdens and other burdens are used. Social security burdens were classified into "pension burden," "long-term care burden" and "other burdens." "Pension burden" and "long-term care burden" were calculated according to the detail list (appendix table 10) for SNA social security contributions.
2) For items of payment of the government, actual final consumption + transfer of goods and services, subsidies, etc., social security benefits, other benefits, savings (net), and national benefits through public investments are used. Of these, actual final consumption + transfer of goods and services are classified into "educational expenses" and "others." Educational expenses were computed on the basis of education expense items in social transfer in kind and actual final consumption in total outlays of General Government classified by Purpose (appendix table 7) of SNA. Since the use of 68SNA of "System of National Accounts" would make the past data available only up to 1970, the 1970 data were used for 1969 and earlier years. Social security benefits were classified into "pension benefits," "elderly medical care benefits," "long-term care benefits" and "other benefits." "Pension benefits," "elderly medical care benefits" and "long-term care benefits" were calculated on the basis of the detail list of transfers from general government to households (appendix table 9) of SNA. National benefits from public investment were identified with consumption of official fixed capital.
(3) Proportional distribution of items of receipt to generations
Items of receipt for the government
1) Taxes on production and imports were proportionally distributed to households using living expenditure in "Family Income and Expenditure Survey."
2) Of current taxes on income, wealth, etc., taxes imposed on households were proportionally distributed to households using direct taxes in "Family Income and Expenditure Survey."
3) Of current taxes on income, wealth, etc., taxes imposed on corporations were relegated to households in the following manner on the assumption that such taxes would be ultimately passed on to individuals through wages, dividends, product prices, etc.
- Half of such taxes passed on to factor income on the supply side (a)
- Half of such taxes passed on to product prices on the demand side (b)
Of (a), 75% was considered as employees' income of households, or the portion passed on as wages, and proportionally distributed to households using income from employment in "Family Income and Expenditure Survey."
We have treated the remaining 25% as passed on to capital income and distributed that portion to households in proportion to percentages of household-owned financial assets and outstanding saving in the "National Consumption Situation Survey."
==> Since data on the balance of savings in "National Survey of Family Income and Expenditure" are available only until 1974, the 1974 data were used for 1973 and earlier years.
The portion passed on to product prices (b) was proportionally distributed to households using the ratio of consumption in household budgets and living expenditure in "Family Income and Expenditure Survey."
4) Social security burdens were proportionally distributed to households using social insurance premiums in "Family Income and Expenditure Survey." Of social security burdens, pension burdens were proportionally distributed to generations using public pensions fees in "National Survey of Family Income and Expenditure." For long-term care burdens, two-thirds of total long-term care burdens were proportionally distributed to households for secondary insured (aged 40-64) using income from employment and the remaining one-third distributed to primary insured (aged 65 or above). Other burdens were obtained by subtracting the sum of pension burdens and long-term care burdens from social security burdens for each generation.
Since data on public pensions fees in "National Survey of Family Income and Expenditure" are available only through 1974, the 1974 data were used for 1973 and earlier years.
5) Other burdens were equally distributed to each household.
Items of payment for the government
1) Educational expenses in actual final consumption + transfer of goods and services were proportionally distributed to generations using educational expenditure in household budgets and educational expenses in "Family Income and Expenditure Survey."
2) Social security benefits were proportionally distributed to households using social security benefits in "Family Income and Expenditure Survey." Of social security benefits, pension benefits were proportionally distributed to generations using amounts of public pension benefits in "National Survey of Family Income and Expenditure." Elderly medical care benefits and long-term care benefits were also assumed to belong to households of people aged 60 or above. Other benefits were obtained by subtracting the sum of pension benefits, elderly medical care benefits and long-term care benefits from social security benefits for each generation.
3) Subsidies, etc., other benefits, savings and national benefits from public investment were equally distributed to each household.
==> Since 68SNA has no concept of "consumption of fixed capital," for 1989 and earlier years, what was obtained from multiplying net fixed assets in the term-end balance sheet account (general government) in 68SNA by a certain rate of return (the ratio of consumption of fixed capital in "System of National Accounts (93SNA)" to net fixed assets in "System of National Accounts" for 1990-1998) were distributed to generations according to their respective numbers of households.
(4) Generation-by-generation benefits and burdens in real terms
Generation-by-generation benefits and burdens for each year were calculated in real terms using the GDP deflator (100 for 2003) of "System of National Accounts (SNA)."
(5) Present value assessment of past benefits and burdens for current generations
The latest (2003) present value of benefits and burdens since 1955 was calculated by augmenting them by real interest rates for each year (one-year deposit rate - CPI growth).
(Note)
1. Modification of tax burdens on wage-earners' households
As wage-earners' households have a low ratio of elderly households, considering data for wage-earners' households as representing the average of all households could lead to an overestimation particularly of tax burdens. In order to modify this potential bias, tax burdens (direct taxes) in "Family Income and Expenditure Survey" were calculated by multiplying tax burdens (direct taxes) for those aged 60 or over by "the number of wage-earners' households / the number of all households."
2. Modification of the household distribution by age group
The household distribution extracted from "Family Income and Expenditure Survey" and "National Survey of Family Income and Expenditure" tends to underestimate the number of elderly households relative to the household distribution of "Population Census." In order to mitigate this potential bias, the sample distribution in "National Survey of Family Income and Expenditure" or "Family Income and Expenditure Survey" was not adopted for the household distribution by age group, and instead the number of all households was allotted according to the distribution of households with two or more members by age group in "Population Census."
3. Estimation of future benefits and burdens for each generation
(1) The structure of benefits and burdens by age group present for the current generations of the latest point of time (2003) is assumed to stay unchanged in the future.
(2) The number of households in the future is based on the "household projections for Japan" of the National Institute of Population and Social Security Research through 2025. For 2026-2050, assuming that the ratio of household composition to the population by age group is the same as in 2025, the number of household was calculated by multiplying the household composition by the estimated population by age group in the "population projection for Japan" of the National Institute of Population and Social Security Research. As for 2051 and beyond, since there are no data on the estimated population in units of 10 years of age for these years, the number of households was estimated assuming that "the number of households by age group / total population" in 2050 remains constant.
(3) For benefits from public investment, benefits per household were assumed to be constant from 2030 onward.
(4) For the purpose of reference, public pensions incorporated the statutory increase in insurance premium (rates) under the 2004 pension system reform, while "the 2004 actuarial valuation of the employees' pension insurance and the national pension" was reflected in the adjustment of benefits following the introduction of the macroeconomic indexation.
(5) All elderly medical care benefits and long-term care benefits were assumed to belong to generations aged 60 or over.
(6) The future benefits and burdens estimated in (1) through (5) were translated into the present value assessed at the latest point of time (2003). For the economic growth rate and the rate of interest households are faced with, we adopted the fiscal-year forecast rates in "Structural Reform and Medium-Term Economic and Fiscal Perspectives - FY2004 Revision" through 2012, and the assumed growth rate of 2% and interest rate of 4% based on the growth rate forecast in "Japan's 21st Century Vision," a report by the Working Group on Economic and Fiscal Prospects.