Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, Vol.4, No.1, December 2008
With a declining birthrate and an aging population, Japan is increasingly finding itself in deeper financial difficulties. Recognizing these conditions, the government is now examining a framework for maintaining fiscal sustainability, mainly at the Council of Economic and Fiscal Policy. The predominant cause of such financial difficulties is the existence of financial deficit which has persevered for several years. In the background, however, it has also been largely influenced by the increasing social security cost . In actual fact, social security benefit made up 11.3% of the annual GDP in 1987, rising to 16.8% in 2003, which was an increase of about 1.5 times. On the other hand, the financial balance (relative to GDP) of the general government account accrued a 0.3% surplus in 1987, but a 7.7% deficit in 2003. This paper presents a hypothesis, as one of possible explanations, that the supplementing of social security benefits by the financial deficit also acts as a factor to encourage the decline in birthrate.