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The attempt to analyze the impact on the government budget in increasing childcare subsidy . Norikazu Funase Doshisha University. Introduction.
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The attempt to analyze the impact on the government budget in increasing childcare subsidy Norikazu Funase Doshisha University
Introduction In the year of 2010, It is said that Japan’s government Bond will be will be approx. \637 trillion (that means per family of 4 bears approx. 19,98million). Japan is now facing a severe budget deficit However, the democratic Party of Japan(DPJ) advanced a childcare subsidy system . DPJ’s manifest says that the purpose of this is to reduce childcare cost and support children by social as a whole
About childcare subsidy This childcare subsidy don’t have income ceiling and the resource to carry out this system is financed from the state, local , and company. The government also tried to finance the cost by abolishing spousal deduction. However, public opinion made it hard to do that. Therefore, the amount of tax resource for the childcare subsidy became smaller and smaller.
The purpose of this paper • This result made people feel childcare subsidy is “blown” (because it is hard for people to realize that they pay the cost for childcare subsidy ) • This paper has two purposes . • First, we want to analyze the impact on the utility when childcare subsidy is “blown”
The purpose of this paper Second, we also want to analyze the impact on the government budget in increasing childcare subsidy. This paper uses simple overlapping generations model. The model economy is based on two periods (young and old). For simplicity, the model economy is based on a small open economy. Also, we don’t consider gender in this model.
Models The utility function (t=0,1,2…)
The explanation about θ The tax burden (b) composes two factors. That is, the cost for the childcare subsidy and the cost for the redemption of the bond. We find that the cost of childcare subsidy is the government expense for people. In this budget constraint, people can get as the childcare subsidy (benefit). Therefore, It is not natural that θ is negative .
The explanation about θ People consider various matters in paying tax (Whether or not the tax is properly used when the government tackles financial reform and so on). We assume about θ that if people think the tax policy is very useful because the policy certainly clears the anxiety for the future, the value of θ become larger, and vice versa.
The lifetime budget constraint By using Lagrange function, we solve optimally size of Since the household is assumed to be symmetric, we can find
The optimally size of Therefore
The interpretation of tax burden In this model, we assumed that the government levies the optimal amount of the tax burden for people. Therefore , If the parameter θ is very small, the government can’t levy so much tax from people. Furthermore , if the parameter θ is very small, It also means that the government can’t finance the increased cost of the childcare subsidy, which makes the government finance the cost by decreasing the money for redemption or by issuing the bond
The indirect utility function In differentiating indirect utility function with childcare subsidy, we must note that we can only analyze the positive impact on the budget constraint by increasing childcare subsidy Because θ > 0.
The indirect utility function We assume the condition that θ is very small and the government must finance the increased cost of the childcare subsidy by decreasing money for redemption or by issuing bond. Because people don’t bear the increased cost of childcare subsidy, this means the childcare subsidy is blown
The impact on the utility when childcare subsidy is blown We can find that if the parameters of is very small, satisfaction from blown childcare subsidy will be very small. That is , if the number of children is naturally decreasing and the amount of pension old generation can obtain is also getting smaller like aging country, the effect of the blown childcare subsidy is not so expected.
An analysis of the impact on the government budget Tax burden for per person is For the government, This means tax revenue from per person. However, the government must pay the cost of childcare subsidy as a government expense. Therefore,
The definition of the number of the whole young generation in t period We denote H as the number of the whole old generation in 0 period . Also, we denote as the number of children each household has in -1 period (we must give these factors exogenously because t is 0,1,2…)
The definition of the whole young generation in t period Therefore , The number of the whole young generation in 0 period(denotes ) is as follows The number of the whole young generation in t period ( ) is as follows
The definition of the short-term budget constraint of the government We denote as the excess revenue of the government and assume that this is used for the redemption of the bond or other government expense. This exactly means that the government levies the amount of from each of young people
The definition of the long-term budget constraint of the government We denote as the level of the issued bond in t period. We change these equations as follows
The definition of the long-term budget constraint of the government We change these equations again and write from zero period to infinite period. By doing so, we get
The definition of the long-term budget constraint of the government is the level of issued bond which is assumed to be realized in a steady, infinite period (0-period based). By calculating these equations, we obtain
The definition of the long-term budget constraint of the government Taking into account the transversality condition and No-Ponzi-Game condition Therefore,
Let us analyze the impact on the government budget in increasing childcare subsidy
Let us analyze the impact on the government budget in increasing childcare subsidy We can find that if the amount of the pension people can get is small and people tend to use childcare subsidy for the present consumption or savings (the case that childcare subsidy don’t work for the declining birthrate), childcare subsidy aggravates budget deficit seriously.
Conclusions The result of these analyses tells us that ・ The population naturally decreases (that is , the optimal size of the children each household wants to have is small) ・ Childcare subsidy is used mainly for present consumption or savings because the childcare cost is high and the amount of the pension people get will be smaller.
Conclusions Under these conditions , childcare subsidy is not so good in terms of the both utility and government budget. Japan is now Aging country and these conditions applies. Therefore, we should reconsider childcare subsidy.
Thank you for your Kind attention
