aging on future saving, investment, and budget deficits

The main purpose of this chapter is to simulate the impact of demographic change on Japanese saving, investment, and government budget deficits. There is widespread belief that rapid aging will lead to major shifts in the Japanese saving and investment balance, and severely worsen Japan’s fiscal situation. Using recent government demographic projections, I show that the aging of the population under way will steadily lower Japan’s total saving rate from 30 percent of GDP today to 19 percent of GDP in 2040. Japan’s total investment rate will decline from 28 percent of GDP today to about 22 percent of GDP in 2040. Given the more rapid decline in total saving, Japan’s current account will steadily narrow from its present level, and turn to deficit around 2015.