Government Deficit,Public Investment and Public Capital in the Transition to an Aging Japan

Ryuta Ray Kato

  This paper tries to examine the effects of government deficits, public investment, public capital and public pension policies on the tax burden, capital accumulation and economic welfare in the transition to an aging Japan by applying a simulated method in the expanded life cycle general equilibrium growth model.
  One of the main results of this paper is that the highest income, thus the highest economic growth, is achieved when the future government deficits are the highest. However, such a policy to achieve the highest economic growth with the highest government deficits is necessarily not most preferable for future generations, since disposable income under this policy is necessarily not the highest due to the reason that a drastic increase in a consumption tax rate has to be followed in the future to finance the huge amount of interest payments. Thus, only targeting high economic growth would mislead us as to the economic policy. The implication of this result is that a policy to reduce the future government deficits is most preferable for almost all generations, even though a cut in the future deficits must be followed by a decrease in public investment, thus a decrease in the future public capital.
  By proposing three different scenarios regarding the future government deficit policy, this paper also presents numerical results of the effects on future consumption tax rates, tax burdens, social security burdens, and the generational accounting through the existing pay-as-you-go public pension scheme.
  The effects of an introduction of technological progress as well as of inefficiency in public investment will also be examined numerically.

JFL Classification:H55,H54,H62,C68,J10
Keywords:Debt Burden;Government Deficits,Public Investment,Public Capital,Aging Population,Overlapping Generations Model,Public Pension Scheme,Simulation

Debt Burden and Financial Instability in a Fixed Exchange Rate System

Kenshiro Ninomiya

A lot of economists have pointed out 1) fixed exchenge rate system (doll peg system) 2) financial fragility in domestic economy and 3) capital flight as factors of Asian monetary crises.On the other hand,Minsky has emphasized the debt burden for the financial instability.
  In this paper,we will examine how the degrees of international capital mobility and the financial factors affect the dynamic of fixed exchange rate in which we consider the dynamic of debt burden.The main result of this papers is that there is a closed on the model of this paper by applying Hopf-bifurcation theorem.In this paper,the dynamic of debt burden is a crucial role for the cycle.This feature is different from the Kaldorian Dynamic that does not consider the dynamic of debt burden.

JFL Classification:F41; F31; F32
Keywords:Debt Burden;Financial Instability;Minsky;International Capital Mobility;

Government Deficits in an Aging Japan

Ryuta Ray Kato

Water Management in the Industrial Sector: A Case Study of Shiga Prefecture, Japan

Akihisa Mori

Shiga prefecture has experienced a rapid increase in production along with dramatic change in the industrial structure during these 30 years. Because of this rapid change Shiga prefecture government lagged behind the environmental management during 1960-70s when local environment had been seriously damaged. However, she took the initiative in lake water management policy after it had become clear that eutrophication has continued in Lake Biwa.
Firms, on the other hand, took an end-of-pipe solution when the new ordinances and regulations were enacted to tighten the regulations in the late 1970s and early 1980s. However, water quality has not improved so much in Lake Biwa, which signifies the limited impact of the end-of-pipe solution and regulatory approach.
Situation has been changed when standard of environmental management system was published and some major firms started adopting it. This is because the system requires firms to modify existing process and products, which will make them take in the entire value chain for the products and process materials used and take influence on suppliers and customers along the supply chain. It has a potential for a firm to take a cost-effective approach to manage the environment.
In this paper we examine how the plants manage the environment and compare it among different sectors and sizes of firms in Shiga prefecture. Then, we go on to analyze the incentives of and actions for increasing supply of environmental technologies. Finally we analyze the impact on the water consumption and the pollutant load inflow to Lake Biwa.

Key Words: end-of-pipe solution, environmental management system, Lake Biwa

JEL Classification Number: Q2

Government Deficits in an Aging Japan

Ryuta Ray Kato

   This paper tires to examine the effects of government deficits and public pension policies on tax burden, capital accumulation and economic welfare in the transition to an aging Japan by applying a simulated method in the expanded life cycle growth model.
   It is shown that the policy to maintain a 110% level of the ratio of outstanding government debts to GDP is not preferred by all generations when a wage tax is used to redeem outstanding government deficits, but this policy is in turn preferred by old generations to the policy to maintain a 90% level of the ratio when a consumption tax is used to redeem deficits. It is also shown that a lower level of outstanding government deficits in a steady state is more preferred by future generations, since a lower steady state level of outstanding government deficits is followed by an increase in tax rate at a relatively earlier stage, thus resulting in a relatively lower tax on future generations to finance the interest payment incurred from the smaller amount of future outstanding government debts.

Financial Cycles

Ichiro Ide and Akihisa Shibata

   This paper constructs a dynamic model in which financial factors cause endogenous business cycles including chaotic fluctuations. In this economy heterogeneous entrepreneurs exist and multiple project-types are available.The proportion of naive entrepreneurs affects the cost of financial intermediation through which smart entrepreneurs obtain funds for investment. The changing proportion of naive entrepreneurs in the loan market causes endogenous switching of the effective project-types and results in corresponding cyclical movements in investment and national income. These business cycles continue forever, and the mechanism does not require any technological nonlinearity.

The Open-Economy Kaldorian Business Cycle and Financial Instability

Kenshiro Ninomiya

   Asada (1995) studied both the systems of fixed exchange rates and floating exchange rates by considering international capital mobility. Asada (1995) showed that the system of fixed exchange rates is a system to destabilize the economy, whereas the system of floating exchange rates is a system to stabilize, when the international capital mobility is sufficiently large. However, he did not discuss the financial instability.    In this paper, we will examine how the degrees of international capital mobility and the financial factors affect the dynamic systems of fixed exchange rates and floating exchange rates. The main result of this paper is that if the instability of the economy depends on only the financial factor, the high international capital mobility does not always destabilize the dynamic system of fixed exchange rates, and nor does it always stabilize the system of floating exchange rates.

Granger Type Causality for Nonlinear Data

Gan Ohama

The causality proposed by Granger (1969) and tests for it are often used in economic science to find relationships between more than two factors of interest. However the Granger causality presumes linearity and has limitation to analyze the relationship of ``nonlinear'' factors. In this paper we extend the Granger causality for nonlinear relationships and propose methods for analysis of data by the causality; the efficiency of the methods is also investigated.

In Case of Uncertain Health Level,
When Does the Individual Decide to See a Doctor?

Ryuta Kato

Within a fully continuous dynamic framework, in which health is assumed to deteriorate uncertainly with age, the optimal level of health at which the individual decides to see a doctor as well as to which the individual improves his health by obtaining medical treatment will be characterised. It will be shown that as long as the cost to keep obtaining medical treatment during a certain period of time is strictly positive, there will always be a finite period during which the individual does not require medical treatment, and that under a certain condition an increase in medical expenditure induces the individual to see a doctor more frequently than before if the increase in medical expenditure is not caused by an increase in the cost which depends on the individual health level. It will also be shown that the effects of an increase in uncertainty and aging population on the optimal frequency to see a doctor depend on time preference, the trend and the volatility of the process of health deterioration.

The Viability of Japanese-Style Management in China:
Cases of Shanghai, Beijing and Dalian

Teruhiko Tomita

Studies on viability of foreign management in China and of Chinese employeesユ motivation have lagged far behind the drastic increase of FDI in China. To successfully manage a business corporation globally both from the viewpoints of Chinese and foreigners, this gap must be filled. For this purpose, a questionnaire and interview survey was conducted. It addressed to Chinese middle-level managers and to Japanese top managers in Japanese capital-affiliated companies operating in Shanghai, Beijin and Dalian, the three largest Japanese FDI receiving cities.

Our findings show both Chinese middle managers and Japanese top managers evaluate the acceptability of Japanese-style management, which has been somewhat modified to suit local values, is fairly high and that it functions fairly effectively in line with corporate objectives.

However, our findings also suggest three questions which foreign companies have to address positively in a global perspective. They are: 1. how to successfully establish and share management creed which will consolidate and raise the performance of employees; 2. how to meet progressively the needs of Chinese employees, particularly through the disclosure and transfer of new skills and technology, the cost of development of which is actually enormous; 3. how to assimilate and come to respect Chinese culture and the Chinese value system. Without addressing this last question, foreign companies will never obtain corporate citizenship in China.

Medical Doctors and Patients in a Two-Sided Search Model

Ryuta 'Ray' Kato

   This paper proposes a characterisation of the optimal interaction between the patient and the medical doctor by incorporating scale transformation of distributions into a two-sided matching model. It also investigates the effects of congestion at the medical place, prolonged lifetime, as well as an increase in the doctor's salary on the optimal behaviours of the patient and the doctor.
   It will be shown that there always exists a unique equilibrium pair of the patient's reservation utility and the doctor's reservation utility in the patient-doctor market with frictions, and that under a certain assumption of the distributions of idiosyncratic preferences, the patient's prolonged lifetime would induce increases in both the optimal reactions of the patient and the doctor. Since an aging population is partly caused by prolonged lifetime, both the patient and the doctor are more selective about each other in an aging society. Furthermore, it will be shown that an increase in the doctor's non-fixed salary decreases his own reservation utility and increases the patient's reservation utility. The congestion effect on the optimal reactions depends on the scale transformation of the distributions of idiosyncratic preference.

JEL Classification: I10, I18, D83

Keywords: Two-Sided Search, Health, Medical Doctor, Patient, Aging

Second Mover Advantage: Observation Values

Shuichi Senbongi

   Showing a new equilibrium for Endogenous Stackelberg Problem, the purpose of this paper is to focus on two faces of information value. We examine three-stage duopoly models with cost uncertainty, where two firms choose between Cournot or Stackelberg competition in the first stage, observe marginal costs in stage 2, and produce and compete in the homogeneous product market in stage 3. We examine three types of observation: no, private, and public observations. In "no observation game," neither firm observes, a firm observes own marginal cost in "private observation game." Firms observe both marginal costs under "public observation game."
   First mover advantage generally exists in a homogeneous product market. When there is uncertainty in the market, second mover advantage is defined by information value. When variances of uncertainty are large, second mover advantage dominates first mover advantage in private and public observation games. Private observation result is a simple extension of Albaek (1990), examining homogeneous product market. It implies that asymmetric information structure, which enables the Stackelberg follower to infer unknown private information of the Stackelberg leader, is a source of second mover advantage. On the other hand, the public observation result shows a new equilibrium and a new source of second mover advantage. Sensitivity of players' response to observed information determines size of information value. That is, observation yields information value, and equilibrium response to observed information determines the size of information value.

The University Student Experience:
An Exploratory Case Study of Shiga University (Faculty of Economics)

Marina Lee-Cunin

This paper is intended to give a general overview of the student attitudes towards Shiga university,the Japanese education system and university life. 272 first and second year students at the Faculty of Economics at Shiga university participated in the research and their full comments are included in this paper. It is an exploratory study and therefore,it is expected that the results of this small scale research will act as a springboard for further research into this area and contribute to any positive policy changes that may occur at Shiga University.Moreover, it is hoped that the basis of the questionnaire could be developed into a more standard and formal means of student assessment for the university.The student perspective is a necessary component in any viable reform of the higher education system and therefore should be adequately represented and reflected as such.

Local Environmental Capacity Building amid Rapid Industrialization:
A Review of the Experience in Osaka Prefecture Government*

Akihisa MORI

  In this paper we reexamine the process of environmental capacity building in Osaka prefecture government to find some implication for East Asia. Main findings are: first, the conservative attitude and ad hoc approach at the outset, along with the priority on the economic growth policy and lack of laws, deterred polluters to comply with the emission standard and made anti-pollution movement fierce. To get compliance from polluters and social acceptance for environmental administration scientific approach became the only possible way, but it takes several years to complete them, and thus to launch effective measures. Second, Osaka prefecture government could not enhance environmental management capacity without any central government support, even though she had some capacity to conduct them. Third, this system of total pollutant load control reduced NOx emission from factories directly and reduced total SOx and COD emission indirectly by clarifying the minimum volume of reduction as a target. The effectiveness, however, was limited within a decade and it failed to prepare other technical measures that can reduce emissions in a more cost-effective way.
  This experience in Osaka may have two implications for East Asia. First, it is essential to set a maximum permissible emission volume clearly based on thorough scientific study, while it may entail high monitoring cost. Second, it is indispensable for the central government to respect local initiatives and to help to build their environmental capacity through legislation of environmental laws, delegation of some regulatory authorities, technological transfer on scientific studies and on on-site inspection.

Key Words: environmental capacity building, Osaka, social acceptance, compliance

JEL Classification Number: Q2

Local Environmental Capacity Building in Thailand:
A Japanese View*

Akihisa MORI

  In this paper we examine the process of environmental capacity building in provincial and local governments in Thailand after 1992. First we examine the interactions between the central and local government for local environmental capacity building. Then we take Bangkok Metropolitan Administration (BMA) and Samut Prakarn provincial government as cases, and compared the process among them and with the one of Osaka prefecture government.
  Main findings are as follows: first, the new Basic Environmental Law has been successful in widening the scope of power and budgets of the Ministry of Science, Technology and Environment and unifying them to the Ministry. However, it was not so successful in encouraging the central government to support the local environmental capacity building, especially administrative capacity. Second, the environment can not be managed effectively in Samut Prakarn province without the firm commitment of the central government. BMA, by contrast, is initiating projects and enforcing effective regulations, with the technical supports and the delegation of authority from the central government. The Japanese experience implies that provincial and local governments could initiate more stringent and integrated measures than the central government, due to the competition among them, the pressure from local people and the central supports. Even BMA does not have all of these factors. This may result in the slower progress in environmental capacity building when the central government turn her policy orientation towards economic growth without environmental preservation.

Key Words: Thailand, local environmental capacity building, scope of power and duty

JEL Classification Number: Q2, H7

Increasing Returns and Externalities
− An Equilibrium Existence Theorem −

Yoshiyuki Tanigawa

  In Theory of Value, which is one of the fundamental sources in general equilibrium theory, G.Debreu said that "Three phenomena that the present analysis does not cover must be emphasized: (1) external economies and diseconomies, i.e., the case where the production set of a producer depend on the productions of other producers (and / or on the consumption of consumers), (2) increasing returns to scale, (3) the behavior of producers who do not consider prices as given in choosing their productions." In this paper, we will treat the existence problem of general equilibrium with externalities and increasing returns to scale (or more general non-convex technologies ). This also integrates the classical topic, the existence problem with non-ordered preferences with the literatures of non-convex technologies.

Trade,Welfare,and Comparative Advantage
in a Dynamic World Economy over an Infinite Horizon:
The Discrete - Time Case

Hajime Kubota

   This paper considers gains from trade,terms of trade improvement ,and the weak law of comparative advantage in a dynamic world free trade economy over a discrete-time horizon. sN is employed as the underlying commodity space as in Peleg-Yaari(1970) and Boyd-McKenzie (1993). General consumpution sets are also used instead of the positive orthant ( s N )+. Moreover, transitive preference are not required and convexity of preferences is weakened to the convex hull/ irreflexivity condition.

Transition to Aging Japan:Public Pension,Savings and Capital Taxation.

Ryuta Kato

This paper examines the effects of public pension policies on savings and economic welfare in the transition to aging Japan by applying a simulated method in the expanded life cycle growth model, and places a special emphasis on the fact that interest income taxation produces a higher level of utility of younger generations (born after the beginning of 1970's) than consumption taxation, both of which are taxations financing the public pension scheme in Japan.