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Child Benefit and Fiscal Burden: OLG Model with Endogenous Fertility

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Abstract

In this paper, we present an OLG simulation model with endogenous fertility in order to analyze the relationship between child benefit and fiscal burden in Japan. Our simulation results show that expansion of the child benefit will improve the welfare of current and future generations. On the other hand, our findings show that we cannot expect a significant long-term improvement in welfare solely from implementing a policy of increasing the consumption tax. If both the sustainability of the fiscal budget and the improvement of the welfare of current and future generations are requirements, we will need to promote a strategy consisting of such components as a policy-mix that includes both child benefit expansion and additional fiscal reform, i.e. increasing the consumption tax. Implementation of such a policy-mix could be expected to yield a higher economic level in the welfare of current and future generations than could be expected solely from consumption tax reform.

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