COVER STORY • Future Design – Thinking About Our Legacy to the Next Generation • 4

Reflection of Long-term Fiscal
Policy Through Moral Philosophy& Experimental Social Science

By Toshiaki Hiromitsu

Structure of Fiscal Issues
Global warming issues are often taken up as a public policy
challenge that crosses multiple generations, but finance is also apolicy which has long-term impact. Sustainability of debt has
become an issue in many countries including Japan. First, let us
clarify the structure of fiscal issues by comparing them to global
warming issues. While global warming is an issue with a timeframeof 50 to 100 years, fiscal issues span a shorter time – around 50
years at maximum. Fiscal issues are both intergenerational andrelevant to the current generation itself. In addition, while interests inglobal warming issues are clustered geographically, interests in fiscal
issues vary according to the personal economic status of individuals
and what stage in life they are at. Hence when thinking about fiscal
issues, there is a need to consider the complexity derived fromtimeframe or interest clusters.
There is also an important difference in the nature of the resourcesin question. In the case of global warming, natural resources (in theform of greenhouse gas emission caps) are an issue, but in fiscal
issues the problem is economic resources, and economic resources
are made by people. According to John Locke (Two Treatises ofGovernment, 1689), what people make or produce becomes that
individual’s property, and to this extent, if a certain economic
resource was to be retained for the future generations, views such as“Why is it that I cannot use products that I have made just formyself?” will be raised. What we need to remember here is David
Hume’s concept of ownership, which he defines as to be establishedby humans in the form of conventions rooted, first of all, in interests(A Treatise of Human Nature, 1739-40). Locke’s scheme of a person
plowing an empty field to gain ownership of the land and crops is notnecessarily appropriate for modern economy. In resolving fiscal
issues, conventional arrangement of resource ownership holds
significant meaning.
To begin with, how is the foundation laid out for ethics between
generations? I have addressed this issue before (“PhilosophicalFoundation for Issues of Future Generations” by Toshiaki Hiromitsu,
Finance, September 2015), and assume that what supports
intergenerational ethics is ultimately an agreement between thosewithin the same generation, and what supports that agreement is thereason that humans possess. The reasonable is contrasted with therational by John Rawls (Political Liberalism, 1993), and people whomeet the reasonable are those who understand that if other people
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AuthorToshiaki Hiromitsu

honor the fair provisions of cooperation, then that principle must be
honored even if circumstances may require sacrificing one’s own
interest. This image of humans (although Rawls himself tries to keep
this as a political initiative) is analogous with Hume who sees
humans as having altruism as their true nature, and in recent years
with knowledge of psychology and behavioral economics. Rhetoric
plays an important role in creating that agreement. Agreement is thebasis for ethics, further creating a system, and with the help of thesystem an attempt to enforce intergenerational ethics is made. Future
Design (FD) can be understood as work that attempts tosystematically support our choices so that they are in line withintergenerational equity, rather than shifting to private interests,
which we tend to do.

Solving Problems in Long-term Fiscal Policy
Through Laboratory Research
Investigations on the function of FD have been conducted throughexperiments. Studies on fiscal policies using experimental
methodology include those of Charles Bram Cadsby & Murray Z.
Frank (“Experimental Tests of Ricardian Equivalence”, Economic
Inquiry, 29(4), 1991), but what I embarked on inspired by Tatsuyoshi
Saijo (“Future Design: Bequeathing Sustainable Natural
Environments and Sustainable Societies to Future Generations”,
SDES-2018-4, Kochi University of Technology, 2018) and others was
research on determining hypothetical fiscal policies in a laboratory(“Consideration of Keys to Solving Problems in Long-term Fiscal
Policy Through Laboratory Research”, International Journal of
Economic Policy Studies, 2019). Some 447 people from their lateteens to their 70s were each asked to choose between deferringcosts until 30 years later (Fiscal policy 1: FP1) or to share thembetween now and the future (Fiscal policy 2: FP2); and later, thepolicy to be adopted was determined through exchange of opinions
in a group consisting of three people. For some groups, one member
was randomly selected from the three as an imaginary future
generation and was asked to participate in the opinion exchange by
pretending to be someone 30 years from now.
The study mainly examined two hypotheses. One is the “silver
democracy hypothesis” and it hypothesizes that elderly participants
tend to choose to defer the costs. The other is the “deliberative
democracy hypothesis” which hypothesizes that we come to better
decisions (in the case of this experiment, to share the costs between
Japan SPOTLIGHT • March / April 201913

COVER STORY 4

CHART 1

Relationship between support of FP2& age
1
Line A

0.8

Line DLine B

0.6

policy selection

now and the future) through deliberation.
In looking at the “silver democracy hypothesis”, we indeed
identified that as age rises participants supporting FP2 decreased.
But the speed at which it decreased was slower than when the policy
was selected based on private interests (Chart 1). The support for
FP2 from elderly participants may have also been supported bypublic judgment, stepping away from private interests. It may be thatwith the progress of age, people near the state of nirvana and makeuniversal judgments. (On the other hand, support for FP2 based on
public judgment is estimated to be weaker than support based on
private interests. To this extent, we should be mindful of thepossibility that support for FP2 by the elderly age group is unstable.)On the “deliberative democracy hypothesis”, compared with theshare in support for FP2 before the opinion exchange (71.6%), theshare in support for FP2 was higher for the decision as a group after
the opinion exchange (79.1%). In particular, support was higher forgroups where the imaginary future generation was introduced(87.7%). At first glance it seems to support this hypothesis. But
when looking at the results carefully, in the change in opinions
through opinion exchange, changes that were adaptive to the masses
clearly stood out (Table). Participants who had selected FP1 may
have been guided towards FP2 by peer pressure from the other twoparticipants who had selected FP2 (or the imaginary future
generation). In addition, it was indicated that there may be apossibility that the logic to support FP1 (optimistic thoughts
regarding future economic growth, or the feeling that it is notnecessary to be wary since the value of future generations are

0.4

0.2

-30

-10

0

Line E
Public judgment /Care for the direct decendants

Line C

40

70

Personal interests

20

30

age

50

60

55

Note:
Vertical axis shows the percentage of support for FP2, and horizontal axis is age. Judging
from personal interests, support for FP2 for those aged 55 years (average remaining life of
30 years) is 0%. Assuming that support for FP2 will be 100% at ages minus 30 or minus 10
years (becoming an adult in 30 years), the rate of support between the age groups will beshown on line A or B, which connects 100% and 0%. Lines C and D show support rates forparticipants obtained through regression analysis (for difference in lines C and D, see
Hiromitsu, 2019). The spaces between line C (D), and lines A (B) represent room forelevation of support for FP2 by public judgment or in consideration of direct descendants.

Source: Toshiaki Hiromitsu (2019), Consideration of Keys to Solving Problems in Long-term
Fiscal Policy Through Laboratory Research, International Journal of Economic Policy
Studies

TABLE

Opponents of those who changed their opinions through opinion
exchange
Adaptive opinion change
Composition of opponents
People who changed
FP1→FP2(39 people )Others2,2IFG, 22,2,1

2,1

IFG, 11,1

15 people

12 people

4 people5 people2 people

1 person

Adaptive
opinion change
Composition of opponents
People who changed
FP2→FP1(21 people )Others1,1

1, 2

1 , IFG

1,2,2

2, IFG2

7 people

6 people3 people2 people2 people

1 person

Note:* For example, “2, 1” means one supporter of FP2 and one supporter of FP1. IFG represents Imaginary Future Generation.
** “ Adaptive opinion change” means the adaptive opinion change to the majority of the group opponents. There were 39 people who changed their opinion from
FP1 to FP2 through exchange of opinions, and it can be seen that of those people, 31 (15+12+4) changed their opinion to adapt to the majority.

Source: Toshiaki Hiromitsu (2019), Consideration of Keys to Solving Problems in Long-term Fiscal Policy Through Laboratory Research, International Journal of
Economic Policy Studies

14 Japan SPOTLIGHT • March / April 2019

COVER STORY 4

unknown) may have been more convincing than the logic whichcalled on generational equity that supported FP2.
With this in mind, one of the future challenges is how to improve
the function of deliberation. What is happening when a personchanges their opinion, and how? In what instances does a person
step away from their initial perspective? One route is to approach itfrom neuroscience. For complex issues such as fiscal policy, even if
imaginary future generations were to be introduced, to merely
allocate that role randomly may not be enough for it to function fully.
If that is the case, what efforts should be applied as an institutional
back-up that supports deliberations?

Role of Norms in Intergenerational Cooperation
Seeking alternative or complementary methods for deliberation is
also an important challenge. In my paper (“The Role of Norms inIntergenerational Cooperation – Studies Through Economic
Experiments and Implications for Fiscal Policy”, RCNE Discussion
Paper Series No. 6, Hitotsubashi University, 2018), I discussed
experiments conducted focusing on the role of norms inintergenerational cooperation, and searching for implications forfiscal policies.
To be more concrete, an experiment (A) where the participants
donate their allotted 200 points alone was first conducted; then asecond experiment (B) was conducted by splitting the participants
into two groups, the first-movers and the second-movers. In B, thefirst action whereby the first-movers divide their allotted points into
points to keep and points to donate is the same as experiment A, but
in B the donations will not be donated directly but instead will be
entrusted to the second-mover. Second-movers then divide the sumof points that were entrusted from the first-mover and the allotted
points into points to keep and the final donation. First-movers are
assumed to be equivalent to the preceding generation, and secondmovers as the succeeding generation. The final points of donation
through the two generations would be considered public goods aslong-term survival of the community. This is understood to be theframework to consider intergenerational cooperation between
adjacent generations in the supply of public goods.
The result of the experiment showed that in B, second-movers
who had the impression that the donation entrusted to them from thefirst-movers was higher than what their norm had anticipated, raised
the percentage of points going to donation. In other words,
compared to individual (second-mover) donations in experiment A,
second-movers who felt that the donations received from firstmovers was large increased the donation (percentage in holding

CHART 2

Relationship between impression of
first-mover & action of second-mover
100
80
60
40
20
-200

-150

-100

-50

0
-20

0

50

100

150

200

-40
-60
-80
-100
Note: Impression of first-mover in the eyes of second-mover (horizontal axis)
Change in second-mover’s percentage of donation in capital* (vertical axis)* against equivalent of 200 points

Source: Toshiaki Hiromitsu, “The Role of Norms in Intergenerational Cooperation – Studies
Through Economic Experiments and Implications for Fiscal Policy”, RCNE Discussion
Paper Series No. 6, Hitotsubashi University, 2018

capital) in experiment B (Chart 2). (The more donations entrusted
from the first-mover, the larger the capital of second-movers
becomes, and hence if the income elasticity of the donation is high,second-movers might increase the percentage of donation, but thatpossibility is eliminated by statistical analysis.) This can beinterpreted as second-movers conforming to the norm indicated by
the first-movers.
Such conformity holds potential to promote intergenerational
cooperation. Chart 3 is a scatter diagram of donations from firstmovers in both experiment A and B. First-movers make decisions ina circumstance where the decisions of second-movers areunavailable. In estimating the decisions of second-movers, one
methodology is to assume that “second-movers hold the same utility
function as myself (first-mover)”. Under this estimation, solving thefunction assuming that first-movers maximize their own utility,“second-mover = first-mover: equation (6)” in Chart 3 can beachieved as a solution for the first-movers’ donation in experiment B.
(There are certain assumptions that are laid out for the utility
functions of first-movers and second-movers, and for details pleaserefer to the original source.) Donations of the first-movers remain atzero for those that donated up to 100 points in experiment A, andlater becomes an increasing function, but the donations are
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COVER STORY 4

CHART 3

Donations by first-mover (scatter diagram)
200
gB1 = 0.73gA1 + 20.1
Experiment B(gB1)

R2 = 0.63

00Experiment A(gA1)
ActualOptimal: equation (8)Linear (actual)

200

Second-mover=first-mover: equation (6)Conformity: equation (10)Source: Toshiaki Hiromitsu, “The Role of Norms in Intergenerational Cooperation – Studies
Through Economic Experiments and Implications for Fiscal Policy”, RCNE Discussion
Paper Series No. 6, Hitotsubashi University, 2018suppressed compared to the actual amount. On the other hand, inthe case when the first-movers estimate that second-movers
conform to them, donations from first-movers increase up to“conformity: equation (10)” or to “optimal: equation (8)”. The final
donation that emerged via the first-mover and second-mover also
increased compared with when there was no conformity.
In cases such as this where conformity is anticipated, it should be
noted that first-movers take actions according to the Kantian
categorical imperative (philosopher Immanuel Kant’s proposition of“Act only according to that maxim whereby you can, at the sametime, will that it should become a universal law.”). First-movers wish
for cooperative activity from second-movers, and they themselves
act cooperatively. It is generally said that punishment does not
function between generations. Succeeding generations cannot
punish the preceding generations. But in circumstances where thiscategorical imperative is effective, first-movers must be cooperativeor otherwise receive the punishment of reduced final donations.
Second-movers take the final donation hostage to ask forcooperation from first-movers. From the perspective of the firstmover, it is the same as the second-mover employing a trigger
strategy. Under this strategy, the credibility of intimidation generally
becomes the issue, but for second-movers in this experiment, theirnorms themselves have transformed, and therefore intimidation iscredible. Direct reciprocity has emerged between the first-mover and
16 Japan SPOTLIGHT • March / April 2019the second-mover.
I would like to point out that this Kantian categorical imperative ishighly practical. For example, prefectural governors in Japan who areelected directly and whose term is guaranteed hold strong authority,
but it can be shown that even amongst governors there is conformity
to the predecessor in terms of fiscal discipline. As long asconformity works, each governor, while not wishing to waste money,
thinks that once throwing away money begins, bad habits willcontinue for generations, risking the long-term survival andprosperity of the prefecture, and therefore resists wasting money.
Such logic can work. The same may also be valid when substituting
governors with members of prefectural assemblies, staff orresidents.
Moreover, when disciplining long-term fiscal policy, it may be
useful to recognize that the preceding generation did well through areinterpretation of history. To look at the same issue from inside out,
even if the current critical fiscal condition – which is the result of thewild fiscal management of the preceding generation – were to bevoiced, changes in norms that would promote fiscal reform may not
emerge. In addition, what should be pointed out is the efficacy ofteaching the “social fact that conformity to first-movers works” toincrease cooperative activity. Amongst those who have public spirit,
there may be some that fear being exploited by the succeeding
generation and therefore hesitate to cooperate. Teaching this fact ofconformity may be effective to soften this fear.

Future Challenges
This article has introduced research that has intensively appliedmoral philosophy and experimental social science to solve long-term
fiscal issues, approaches which had thus far not been fully applied
when considering fiscal policy.
How to utilize deliberation including imaginary future generations
will continue to be a major focus. More in-depth research on voting
systems, such as Demeny voting, and further discussions about
establishing the rights of the future generation as constitutionalrights can also be valuable. The issue is deeply embedded in thequestion of what the future would look like for people. Research on
the characteristics of discount and uncertainty surrounding public
policy would also be an important challenge.
Toshiaki Hiromitsu is visiting scholar at the Policy Research Institute of the
Ministry of Finance (MOF). He has professional experience in the World Bankand Office of the Prime Minister. At the MOF he was director of Fiscal Analysis
and director of Budget for Social Security in recent years and now he is directorof the Treasury Division.