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Discussion of:“Comparison of Various Fiscal Policies inthe Face of Different Demographic Stages”

by Naoyuki Yoshino, Keigo Kameda
Hiroaki Miyamoto, Zhenkun Lu

08/06/2024

Jacopo Cimadomo (European Central Bank)
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Contribution to the literature• Existing literature on the impact of fiscal policy (stimulus) depending onaging [Honda and Miyamoto (2021), Miyamoto and Yoshino (2022)]• Basso and Rachedi (2021): Higher marginal propensity to consume of theyoung  larger response of labour and consumption following a spendingexpansion  larger fiscal multipliers in younger societies• Miyamoto et al. (2024): impact of aging on the effectiveness of different
fiscal instruments2

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This paper•

Four different fiscal expenditures:
1. Government consumption
2. One-time government transfers to households
3. Public investment
4. R&D spending•

State-of-the-art dynamic stochastic general equilibrium (DSGE) model•

Model calibrated on Japanese data•

Impulse responses to the four different g shocks under different assumptions on theshare of workers vs. retirees: Φ=(0.85, 0.55)

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Key findings• Aging  weakens the effectiveness of 3 out of 4 instruments:
government consumption, R&D spending and public investment• Transfers exhibit a greater demand expansion effect with aging due to alarger increase in retirees' consumption• R&D expenditure is the most effective measure across all time spans,followed by public investment. Transfers the least effective.

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This paper• Very interesting and policy-relevant paper (especially in rapidly agingsocieties, like Japan but also the EU)!

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Comment #1• Results based on the assumption of rule-of-thumb retirees• They consume their full pension plus transfers, no savings
 this explains higher effects of transfers in an aging society• At odds with Basso and Rachedi (2021)• Some estimates and descriptive statistics on MPC would be useful• Akihiko Yoshida’s (anecdotal) evidence!
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Comment #2• Pensions are a fraction of SS value of real wages:• In an aging society (the share of pensioners increase from 15% to 45%)
pensions would need to ensure the sustainability of a fully-funded pension
system  what are the implications of a declining s?

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Comment #3: R&D
Funding sources for research & developmentin the United States
Total

Percent of GDP

3%

2%

1%

0%

Business

67% of total

Federal gov't
31%of total
1960

Other1980

2000

74%oftotal• Is government
R&D in Japan asignificant part of
total R&D?
• Why public
investment does
not affect TFP?

19%oftotal
2020

Source: Anderson, G.; Moris, F. (2023). "Federally Funded R&D Declines as a Share of GDP and Total R&D". NationalScience Foundation, National Center for Science and Engineering Statistics
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Comment #4: impact of aging on fiscal multipliers• The impact of demographics on present values fiscal multipliers seem to besmall (apart from R&D) spending

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Comment #5: policy implications• How to alleviate the impact of aging in Japan (and other advanceeconomies)?
• Migration, pension reforms• Gains from productivity growth, e.g., AI revolution• However, labor productivity seems to be higher than previously thought inJapan, if one looks at GDP per working age population rather than GDP per
capita (Fernández-Villaverde, Ventura, Yao, 2023; Abbritti, Cimadomo,Consolo, 2024)10

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Thank you!

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Is R&D a significant part of public spending?

•Source: Anderson, G.; Moris, F. (2023). "Federally Funded R&D Declines as a Share of GDP and Total R&D".
National Science Foundation, National Center for Science and Engineering Statistics
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Present value fiscal multipliers

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