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Evasion of National Pension Contributions and Hyperbolic Time Discounting: Evidence and Rationale for Public Pensions*
Kohei KOMAMURA** (Professor, Faculty of Economics, Keio University)
Atsuhiro YAMADA*** (Associate Professor, Faculty of Economics, Keio University)
1. Introduction The non-contribution (evasion) rate of the National Pension remains high and has reached 37%1), according
to the latest Annual Report by the Social Insurance Agency (2006). As revealed by Maruyama and Komamura (2005), the main driving factor behind the evasion is the recent change in the labor-market, i.e., an increase in the number of non-regular workers led by long-term economic recession and deregulation of temporary employment contracts. This change has narrowed the coverage of Employees’ Pension Insurance, which insures basically regular workers, while non-regular workers have to join the National Pension Scheme. Because contributions to the National Pension Scheme are paid, de facto, on a voluntary basis, non-regular workers can evade this at will. The effective way, therefore, of avoiding such evasion by non-regular workers would be to expand the coverage of Employees’ Pension Insurance, because these contributions are compulsorily deducted from their wages by employers.
In the first place, however, there have been no explicit discussions on the rationale for compulsory participation in the Public Pension scheme, while there is always much debate around why the government provides a public pension (i.e., the issue of privatization of public pensions). According to the standard lifecycle model in economics, it is assumed that people maximize their lifetime utility through their present and future consumption. This means that a person will voluntarily build up assets to an appropriate level to prepare for their retirement, and may also allocate some portion of such assets to buying a private pension from which he or she can receive an adequate level of benefits until death. In other words, under the assumption of a rational individual, the rationale for compulsory participation in pension systems is not self-evident.
It is noteworthy that there is often some confusion between two aspects of public pensions. Needless to say, the public pension is a system that people are required to join (compulsory participation) whereby a pension benefit is provided by the public system (public provision). However, the rationale for the former could be different from that for
* Acknowledgements: This paper is a result of the Research Project on the Pension System to Accommodate Diversified Modes of Employment (chief researcher: Kohei Komamura) implemented by the Research Institute for Policies on Pension and Aging (formerly The Pension Center) with the support of Health and Labor Sciences Research Grants (in the framework of Research on Policy Planning and Evaluation). The authors wish to thank the fund suppliers, all those involved in the project, and all the respondents to the questionnaires who we refer to in this paper for their help and cooperation. ** Left Keio University’s Graduate School of Economics, in 1995 part way through a doctorate. Became a research fellow at The (Former) Social Development Research Institute in 1993, then a professor at the Faculty of Economics, Toyo University in 2005, and has been a professor at Keio University since 2007, and also a guest research fellow at the Research Office for the Welfare and Labor Committee of the House of Councilors since 2002. Wrote Economic Analysis of Pension and Households (2000) Toyo Keizai Inc., Social Security in Developed Countries 1: The United Kingdom (1999) University of Tokyo Press, Social Security in Developed Countries 5: Sweden (1999) University of Tokyo Press, General Policies for Welfare, third ed. (2005) Soseisha, How Will Pension Change? (2003) Iwanami Shoten, and New Design of Social Security System: from Safety Net to Spring Board (2005) Keio University Press. *** Worked as a research fellow for The National Institute of Population and Social Security Research, then as an economist for the Social Policy Division, The Organization of Economic Co-operation and Development (OECD), and so on, and has been an associate professor at Keio University since April 2005. His main piece of writing is The Economics of Older Workers (2004) co-authored, Nikkei Inc. 1) For public employees and other specific vocational groups, the Mutual-aid Pension Insurance is available as a part of the public pension scheme. For an overview of the Japanese pension scheme, the following site, which is managed by the National Institute of Population and Social Security Research, is very useful: www.ipss.go.jp.
Government Auditing Review VOLUME15 (MARCH 2008)
28
the latter. They should not be confused. The rationale for public provision of insurance, in the form of social insurance, may be a safeguard against
unexpected inflation, an unexpected rise in living expenses (i.e., unexpected economic growth), social changes, or an unexpected increase in peoples' life spans. For pension2), as ultra-long insurance, such uncertainties can cause serious problems. It is technically difficult for private insurance services to adequately safeguard against such uncertainties. This is a rationale for the public provision of pension insurance. On the other hand, the rationale for compulsory participation has not been discussed much, except for the aspect of the externality of free-riding on the public assistance system, i.e., non-contributors and non-participants can depend on that system in the future, even without contributing to the pension system now3).
In the case of the health insurance system, the adverse selection problem is considered a rationale for compulsory participation. On the other hand, in the case of a pension system, the possibility of adverse selection on the part of pension providers would not be as serious as in health insurance. Generally, individual insurance policyholders do not know when they will die, nor can they extend their lives at will, but, as a group, insurers can estimate their average life span (average longevity risk) from a life table.
Instead, in the case of the pension system, the insurance policyholder faces two types of information problem: problems deriving from a lack of long-term information and problems at the stage of information processing, because the risks covered by such insurance continue to exist for a very long time.
As an example of the first problem, some people may make a decision on whether they join pension systems, based on their very subjective views about their own lives, which are impossible to know by nature, i.e., they believe that they will live for longer or shorter than the average lifespan, which is generally stable in developed countries. If people make such decision on their very subjective views of their individual lives, which are probably different from their actual individual lives, they over-consume or under-consume pension insurance products, which leads to an inefficient level of the purchasing of insurance products in society as a whole. This means that compulsory participation in insurance systems, based on the average lifespan, could improve the efficiency of society as a whole4).
Problems of the latter type, i.e., those at the stage of information processing, could occur even if individuals had exact long-term information about their own lives (e.g., the time when they will die)5). One such problem that draws attention is hyperbolic time discounting, as will be discussed later. Those who depend on time-discount rates of a hyperbolic type will always value consumption in the near future higher than consumption in the more distant future. In other words, even if people had exact long-term information and behaved on the basis of the lifecycle model, they would have only an insignificant desire for savings or participation in pension systems, because they have overvalued consumption at the present time, but undervalued it in the future. In this case, individuals would regret their choice in the future, even if they made it rationally on the basis of exact long-term information at the present time6).
Thus, even without problems due to a lack of long-term information, such problems at the stage of information processing would still exist, which could lead to failed inter-temporal distribution of consumption. In that case, compulsory participation in pension insurance systems could improve the efficiency of society as a whole. In addition, when voters are conscious of such a rates-of-time preference, they may voluntarily support compulsory participation in pension systems to make their commitment to the pension systems at the present point, so that they will not experience regrets in the future7).
2) Cases where individuals buy pension insurance by paying a large amount of money in a lump sum are not taken into consideration here. 3) The issue of free rides by non-contributors and non-participants in the pension system is that they depend upon the welfare system in the future without paying premiums now, in spite of the fact that the welfare system is financed by the taxes paid by those who join and make contributions to the pension system. 4) Another typical problem due to the lack of long-term information is that pension insurance products are complicated and ordinary buyers lack sufficient knowledge of these to reflect the long membership terms involved in such products. 5) This has drawn attention to a more generalized aspect, i.e., the question whether a person’s processing capacity may be lower for longer term matters. Refer to Dennett (2003), for example. 6) Take a student’s homework for a one-month summer vacation as an example. The optimal inter-temporal distribution of homework is to do it piece by piece for one month, starting now. For a student, however, with hyperbolic time discounting, it is always a rational choice at the present time to do it piece by piece, starting the next day: in other words, such a student makes such a rational choice every day and finally comes to the end of the summer vacation without finishing the homework. 7) It is the same mechanism whereby alcoholics choose to join, of their own free will, an abstaining program where they come under the total control of a hospital, etc.
Evasion of National Pension Contributions and Hyperbolic Time Discounting
29
What are the differences in policy implications, in reality, between compulsory participation to deal with the problems due to a lack of long-term information, and compulsory participation to deal with problems at the stage of information processing, i.e., failed inter-temporal distribution of consumption?
Take such implications in withdrawal and lump-sum benefits in a defined-contribution pension plan as an example. There is strong demand for deregulation of lump-sum benefits at retirement, from both pension funds and participants. On the assumption that the lack of long-term information on longevity risks is a rationale for compulsory participation in a public pension system, a system where participants might take a lump-sum benefit, would be somewhat rational because it would allow each participant to redistribute the lump-sum benefit among consumption, savings and insurance when he or she has a final longevity risk for himself or herself at the age of 60, i.e., retirement age8).
However, on the assumption that problems at the stage of information processing, such as hyperbolic discounting, are a rationale for compulsory participation in a public pension system, the regulations on the choice of lump-sum benefits should not be relaxed, because people would be highly likely not to redistribute the lump-sum benefit among consumption, savings and insurance in an inter-temporally consistent way, and would make such decisions about lump-sum money that they would eventually regret.
As seen in the above-mentioned examples, a fundamental question is: What is the rationale behind compulsory participation in pension systems? This is related to the basis for the existence of pension systems, or desirable pension policies. This paper elucidates the rationale for compulsory participation in pension systems, by conducting an empirical analysis of the non-contribution to, and non-participation in, the National Pension system on the basis of originally-collected microdata.
2. Background and prior studies9) (1) Theoretical analysis of non-contribution to and non-participation in the pension system – hyperbolic discounting
In the 1970s, with reference to income redistribution, possible market failure and paternalism as three reasons for the existence of an income security system by means of a public pension system, Diamond (1977) already pointed out the limits of a person’s capacity to choose in the face of uncertainties, or in an inter-temporal aspect, as a 8) Nevertheless, even in that case, no long-term information on the longevity risk since the age of 61 can be obtained, so there is still room for arguments against such extreme deregulation that one can receive all one’s pension benefits in the form of a lump-sum payment. 9) The greatest issue that the National Pension system faces is increased non-contributors. Avoidance of contributions to the National Pension system may lead to: a) financial instability of Basic Pensions; and b) the non-contributors’ dependence upon public assistance as their sole income source when they become unable to work because of disease, disability, or old age, unless they have built up enough assets.
The direct cause of the rises in the number of non-contributors in the National Pension system was increased diversification of employment contracts in the labor market during the 1990s. Typical workers (so-called regular employees) who are required to join Employees’ Pension Insurance where their contributions are deducted from their wages before they receive them have decreased, whereas atypical workers who are required to join the National Pension system have increased. As a consequence, the gaps between the employment rates according to age group and the rates of participants in Employees’ Pension Insurance have been much larger since the mid-1990s.
There are some discussions in which the issue of such non-contribution in the National Pension system is considered as a matter of non-participation in the system (i.e., not register as an insured person with the National Pension system). As discussed later, it is actually difficult to distinguish non-contribution from non-participation on data on individuals/households. However, according to the Ministry of Internal Affairs and Communications (MIC) (2004), non-contribution and non-participation in the system are different concepts. Actually, the rate of non-contribution has risen, while the rate of non-participation has declined. The number of non-participants in the public pension systems is now about 635,000.
The background to such discussions where non-contribution and non-participation are confused, is not only the issue of data on individuals/households on which it is difficult to distinguish non-contribution from non-participation in the system, as discussed later, but also a strong influence of the economic idea of questioning whether participation in the National Pension system as an insurance system is decided by the individuals’ rational choice. In other words, the issue of non-contribution that has occurred due to Employees’ Pension Insurance that cannot accommodate changes in the labor market, i.e., an institutional factor, is substituted with the issue of non-participation in the system that is a matter of economically rational selection. Accordingly, if the study subject refers to non-contribution, the discussion would involve a strong consciousness of policy implications. On the other hand, if it refers to non-participation in the system, it would be focused on checking whether individuals make rational choices on participation in insurance, rather than policy implications. Implications that may result from the two different approaches need to be distinguished. For example, the recent rapid deterioration in the National Pension system itself cannot be explained in an analytical framework of rational choice in the latter, to pursue rationales for compulsory participation in the system. Rather, it can be explained as a rise in the rate of non-contribution due to an increase in non-regular employees, i.e., a diversified mode of employment, in the former perspective.
Government Auditing Review VOLUME15 (MARCH 2008)
30
rationale for paternalism. The limit of a person’s capacity to select in an inter-temporal aspect that has recently drawn attention in the field of behavioral economics or neuro-economics, is a hyperbolic time preference.
How much consumption a person would refrain from at present, for future consumption, is closely related to how he or she values future consumption at the present time. Consumption held back at present for future consumption, is referred to as the inter-temporal substitutability of consumption, which can be measured in terms of a time discount rate. The disutility of refraining from consumption at present, in an inter-temporal distribution of consumption, varies according to the individual. The higher such disutility is for an individual, the higher his or her time preference for consumption at present is: in other words, the higher interest rate that he or she desires in consideration of refraining from consumption now, which means a higher time discount rate. Such an individual values consumption at the present point highly.
A lifetime consumption plan selected by a rational person would be dynamically consistent. In other words, it is assumed that a consumption plan selected at a point in time would also be the best choice at any point in time in the future. A required condition for dynamic consistency is that the time discounting function be an exponential function with a constant discount rate. An exponential function of time (t), )1ln()( α+−= tetD , is often used as an example. In this function, even if the discount rate is high, it means that consumption at present is simply given more importance on a planned basis, and a reduced consumption that may have to be made in the future will not cause any regret at that future point in time.
There is, however, doubt if individuals actually behave rationally in such a dynamically consistent way. For example, in the choice between 10,000 yen one year later and 10,500 yen one year and one day later, individuals would take the latter. However, in the choice between 10,000 yen today and 10,500 yen tomorrow, would they not take 10,000 yen today? In case of an exponential type of discount rate, there is no reverse preference according to the time distance from the present: on the other hand, with a hyperbolic time discounting function, there may be such a reverse preference. An example of such a hyperbolic time discounting function is αβα /)1()( −+= ttD (Figure 1).
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0 5 10 15Time (t )
Utility in the future
Laibson's hyperbolic discounting function
Exponential function
Note: This graph is created from Tada (2003).
Figure 1 An exponential function and a hyperbolic discounting function
Evasion of National Pension Contributions and Hyperbolic Time Discounting
31
Studies on whether individuals actually act in a manner that such a hyperbolic time discounting would apply have recently drawn attention as behavioral economics, or neuro-economics. Such studies are now being applied in the areas of savings, debt, health, and wages, etc. Applied studies recently done in the area of social security include a theoretical analysis of the effect of social welfare benefits provided during a limited period, by Fang and Silverman (2004), and an analysis of the effect of such benefits on joining a pension system, by Amador, et al. (2003). Fang and Silverman (2004) suggest that limiting the period of the provision of social welfare benefits for beneficiaries may enhance their welfare under certain particular conditions. Amador, et al. (2003) find a rationale for governmental paternalistic intervention required to optimize a combination of commitment and flexibility, by which the welfare of economic agents is improved by analyzing the problem of undersavings, etc., on a model of inter-temporal selection by an economic agent with hyperbolic discounting. (2) Empirical analysis of non-payment to, and non-participation in, the public pension system
There are eleven empirical analysis reports on non-contribution (evasion) to the National Pension system that have been published so far. The purposes of analysis, data, samples analyzed, models, variables used, major results, and policy implications are summarized in Table1.10)
Data aggregated at a national level were used in an early analysis report by Ogura and Chiba (1991), while data aggregated at the prefectural or municipal level were used in the subsequent reports by Komamura (2001), and Maruyama and Komamura (2005). Individual-level microdata sets were used in analysis by Ogura and Kadoda (2000), Suzuki and Zhou (2001, 2005), Abe (2001, 2003), Nakajima, et al. (2005), Nakajima and Usuki (2005), and Tsukahara (2005). Thus, detailed data are more frequently used and furthermore, data collected particularly for the purpose of analysis of non-payment of pension contributions are now being used.
As to the causes of evading contributions to the National Pension system, recent study reports have focused on not only: (i) liquidity constraints (i.e., a hypothesis that people with insurance premiums relatively high to their income, or assets, are likely to be non-contributors or non-participants), but also: (ii) the factor of diversified modes of employment (i.e., a hypothesis that atypical workers are likely to be non-contributors or non-participants); (iii) the factor of unfairness among generations (i.e., a hypothesis that the younger cohort generation groups are, the more likely they are to be non-contributors or non-participants because they have a stronger feeling of unfairness); (iv) the factor of the requirement of 25-year participation (i.e., a hypothesis that persons become non-contributors or non-participants when they know that it is impossible for them to satisfy the requirement period for qualification for pension benefits), as research results have accumulated, and also: (v) the factor of the propensity for risk aversion (i.e., a hypothesis that persons more risk tolerant are likely to be non-contributors or non-participants); (vi) the adverse selection factor (i.e., a hypothesis that persons with shorter life expectations are likely to be non-contributors or non-participants); (vii) the hyperbolic time discounting factor (i.e., a hypothesis that persons with time discount rates inconsistent with inter-temporal utility maximization are likely to be non-contributors or non-participants). These analysis results of prior studies can be described as follows:
10) This sub-section focuses on parts of those reports concerning the non-contribution to the National Pension system, and does not address any knowledge on other matters, even if a finding may be important in another context.
Government Auditing Review VOLUME15 (MARCH 2008)
32
(a) O
gura
and
Chi
ba (1
991)
(b) O
gura
and
Kad
oda
(200
0) (c
) Suz
uki a
nd Z
hou
(200
1)(d
) Abe
(200
1)(e
) Kom
amur
a (2
001)
(f) A
be (2
003)
Pur
pose
To in
vest
igat
e th
e pa
ymen
t of h
ealth
insu
ranc
e pr
emiu
ms
and
pens
ion
insu
ranc
epr
emiu
ms,
and
pro
blem
s in
volv
ed in
them
,fro
m a
wid
e ra
nge
of a
spec
ts; a
nd to
ana
lyze
the
caus
es o
f non
-con
tribu
tion
to th
e N
atio
nal
Pen
sion
and
Nat
iona
l Hea
lth In
sura
nce
To a
naly
ze th
e be
havi
or o
f pay
men
t of s
ocia
lin
sura
nce
prem
ium
s of
thos
e ho
useh
olds
who
se p
rem
ium
s ar
e no
t with
held
from
inco
me
at s
ourc
e, a
nd it
s ch
ange
s, a
s re
late
d to
thei
rat
tribu
tes;
and
to c
ompa
re th
e re
sults
with
the
burd
en o
f the
hou
seho
lds
who
se p
rem
ium
sar
e w
ithhe
ld fr
om in
com
e at
sou
rce
(i.e.
,em
ploy
ees’
hou
seho
lds)
To a
naly
ze th
e ca
uses
of n
on-p
artic
ipat
ion
inth
e N
atio
nal P
ensi
on. S
peci
fical
ly, t
o an
alyz
eon
a q
uant
itativ
e ba
sis
the
effe
cts
on s
uch
non-
parti
cipa
tion
of (1
) liq
uidi
ty c
onst
rain
t (i.e
.,fin
anci
al a
sset
s ex
clud
ing
pers
onal
pen
sion
s,un
empl
oym
ent/n
on-e
mpl
oym
ent,
and
hous
ehol
d in
com
e ex
clud
ing
the
indi
vidu
al’s
own
inco
me)
, (2)
the
expe
cted
age
s of
dea
th(h
ealth
con
ditio
ns),
and
(3) u
nfai
r dis
parit
ies
amon
g ge
nera
tions
(for
you
ng a
ges)
. (2)
and
(3) a
re re
ferr
ed to
as
“adv
erse
sel
ectio
nfa
ctor
s”.
To a
naly
ze w
heth
er (1
) liq
uidi
ty c
onst
rain
t(p
rem
ium
rate
= a
ssum
ed p
rem
ium
/equ
ival
ent
hous
ehol
d in
com
e), (
2) in
stitu
tiona
l fac
tors
(req
uire
men
t for
25-
year
mem
bers
hip
=du
mm
y fo
r age
s 35
-39)
, (3)
com
mun
ity fa
ctor
s(d
umm
y fo
r the
siz
e of
mun
icip
aliti
es),
and
(4)
adve
rse
sele
ctio
n fa
ctor
s (d
umm
y fo
r life
insu
ranc
e, d
umm
y fo
r ind
ivid
ual p
ensi
on)
affe
ct th
e pa
rtici
patio
n in
, and
con
tribu
tion
to,
the
Nat
iona
l Pen
sion
To s
tudy
whe
ther
the
caus
es o
f non
-co
ntrib
utio
n to
the
Nat
iona
l Pen
sion
are
diffe
rent
from
thos
e of
non
-pay
men
t of
Nat
iona
l Hea
lth In
sura
nce
prem
ium
s, p
ayin
gat
tent
ion
to in
stitu
tiona
l diff
eren
ces
betw
een
them
, i.e
., th
e un
it of
par
ticip
atio
n, c
alcu
latio
nfo
rmul
as fo
r con
tribu
tion
and
prem
ium
, and
the
effe
cts
on m
unic
ipal
fina
nce
To a
naly
ze th
e tim
e of
non
-par
ticip
atio
n; a
ndto
con
firm
whe
ther
the
time
of n
on-
parti
cipa
tion
invo
lves
the
coho
rt ef
fect
. The
avoi
danc
e of
par
ticip
atio
n oc
curs
in tw
om
odes
: (1)
a p
erso
n de
fers
par
ticip
atio
n up
onre
achi
ng th
e ag
e of
par
ticip
atio
n, a
nd (2
) ape
rson
sto
ps p
artic
ipat
ing
afte
r par
ticip
atin
g in
the
syst
em. T
here
are
far m
ore
case
s of
(1)
than
(2),
so th
is a
naly
sis
cove
rs (1
).
Dat
a
Dat
a ag
greg
ated
at t
he n
atio
nal l
evel
,in
clud
ing
(1) N
atio
nal I
ncom
e St
atis
tics,
Lab
orFo
rce
Sur
vey,
Ann
ual O
pera
tiona
l Rep
orts
by
the
Soci
al In
sura
nce
Age
ncy,
for a
naly
sis
ofth
e ra
te o
f non
-con
tribu
tion
to th
e N
atio
nal
Pen
sion
, and
(2) A
nnua
l Rep
orts
on
Soc
ial
Sec
urity
Sta
tistic
s, R
epor
t of S
urve
y on
the
Insu
red
in H
ealth
Insu
ranc
e, L
abor
For
ceS
urve
y, fo
r ana
lysi
s of
the
rate
of n
on-
parti
cipa
tion
in th
e sy
stem
Indi
vidu
al-le
vel m
icro
dat
a fro
mC
ompr
ehen
sive
Sur
vey
on L
ivin
g C
ondi
tions
(198
6, 1
989,
199
2 an
d 19
95) b
y th
e M
inis
tryof
Hea
lth, L
abor
and
Wel
fare
Indi
vidu
al-le
vel m
icro
dat
a fro
m S
urve
y on
Cho
ice
of F
inan
cial
Ass
ets
in H
ouse
hold
s(1
996)
by
the
Pos
tal S
ervi
ces
Res
earc
hIn
stitu
te. T
he s
urve
y co
vere
d 6,
000
hous
ehol
ds w
ith th
e he
ads
aged
20
or m
ore.
Indi
vidu
al-le
vel m
icro
dat
a fro
m S
urve
y on
Inco
me
Red
istri
butio
n (2
006)
by
the
Min
istry
of
Hea
lth, L
abor
and
Wel
fare
Dat
a ag
greg
ated
at t
he p
refe
ctur
e an
dm
unic
ipal
leve
ls, i
nclu
ding
(1) A
nnua
lO
pera
tiona
l Rep
orts
, Hou
seho
ld In
com
e an
dE
xpen
ditu
re, E
mpl
oym
ent S
ecur
ity S
tatis
tics,
Bas
ic S
choo
l Sur
vey,
Res
iden
t Reg
istry
Dat
abas
e, N
atio
nal C
ensu
s, fo
r ana
lysi
s of
the
rate
of n
on-c
ontri
butio
n to
the
Nat
iona
lP
ensi
on, a
nd (2
) Ann
ual R
epor
ts o
n N
atio
nal
Hea
lth In
sura
nce
Ser
vice
s, H
ouse
hold
Inco
me
and
Exp
endi
ture
, Em
ploy
men
t Sec
urity
Sta
tistic
s, N
atio
nal C
ensu
s, fo
r ana
lysi
s of
the
rate
of n
on-p
artic
ipat
ion
in th
e sy
stem
Indi
vidu
al-le
vel m
icro
dat
a fro
m th
e Su
rvey
on
Wom
en’s
Life
styl
es a
nd P
ensi
on (2
001)
. The
data
was
reco
nstru
cted
into
pse
udo-
pane
lda
ta a
ccor
ding
to re
trosp
ectiv
e qu
estio
n ite
ms,
with
1,0
83 fe
mal
e sa
mpl
es (1
60 e
vent
s) a
nd79
6 m
ale
sam
ples
(111
eve
nts)
.
Sam
ples
ana
lyze
d
(1) R
ates
of n
on-p
aym
ents
to th
e N
atio
nal
Pen
sion
: 197
2-19
88(2
) Rat
es o
f non
-par
ticip
atio
n in
the
Nat
iona
lP
ensi
on: 1
973-
1988
(* A
ggre
gate
d at
the
natio
nal l
evel
)
The
head
s of
hou
seho
lds
aged
20-
59 a
mon
gth
ose
cove
red
by th
e in
com
e su
rvey
. In
addi
tion,
am
ong
thei
r hou
seho
lds,
(1) t
hose
that
bel
ong
to th
e N
atio
nal H
ealth
Insu
ranc
e(1
2,89
7 sa
mpl
e ho
useh
olds
who
se p
rem
ium
sar
e no
t with
held
from
inco
me
at s
ourc
e, w
ithth
e he
ads
who
are
par
ticip
ants
in th
e N
atio
nal
Hea
lth In
sura
nce
and
no o
ne in
thei
rho
useh
olds
is a
par
ticip
ant i
n em
ploy
ees’
heal
th in
sura
nce
syst
ems)
, and
(2) t
hose
of
parti
cipa
nts
in e
mpl
oyee
s’ h
ealth
insu
ranc
esy
stem
s (3
8,21
6 sa
mpl
e ho
useh
olds
who
sepr
emiu
ms
are
with
held
from
inco
me
at s
ourc
e)
(1) T
he h
eads
of h
ouse
hold
s an
d (2
) age
d 20
(incl
usiv
e) –
60
(exc
lusi
ve) (
amon
g 61
1 su
chsa
mpl
es, 6
0 sa
mpl
es, o
r abo
ut 1
0%, a
re n
on-
parti
cipa
nts)
. Tho
se o
ther
than
the
head
s of
hous
ehol
ds, w
hich
are
thou
ght t
o in
clud
em
any
mor
e no
n-pa
rtici
pant
s, a
re n
ot c
over
ed.
2,81
4 sa
mpl
es (a
mon
g th
em, 4
94 n
on-
parti
cipa
nt s
ampl
es) e
xtra
cted
, on
the
cond
ition
s of
: (1)
the
age
of 2
0 (in
clus
ive)
– 6
0(e
xclu
sive
); (2
) exc
ludi
ng m
embe
rs o
fho
useh
olds
rece
ivin
g pu
blic
ass
ista
nce;
(3)
excl
udin
g fu
ll-tim
e ho
usew
ives
who
are
spou
ses
of s
elf-e
mpl
oyed
per
sons
; (4)
excl
udin
g st
uden
ts; a
nd (5
) exc
ludi
ng th
ose
who
hav
e re
ceiv
ed p
ensi
on b
enef
its, f
rom
(6)
the
supp
osed
Cat
egor
y I i
nsur
ed (=
Cat
egor
y I
insu
red
by th
e N
atio
nal P
ensi
on +
pers
ons/
thei
r spo
uses
who
are
not
apa
rtici
pant
in a
ny o
f the
Nat
iona
l Pen
sion
,E
mpl
oyee
s’ P
ensi
on In
sura
nce,
and
the
mut
ual a
id a
ssoc
iatio
ns’ p
ensi
on s
yste
ms
(i.e.
,no
n-pa
rtici
pant
s))
(1) R
ates
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
cont
ribut
ions
: 199
1-19
98, a
nd (2
) rat
es o
f non
-pa
ymen
t of N
atio
nal H
ealth
Insu
ranc
epr
emiu
ms:
199
1-19
97 (*
Agg
rega
ted
at th
epr
efec
ture
leve
l)
Thos
e co
vere
d by
this
stu
dy a
re o
nly
fem
ales
and
thei
r spo
uses
. The
mal
e sa
mpl
es a
reth
ose
who
are
mar
ried
with
wiv
es a
ged
30-5
5.M
any
of th
e sa
mpl
es a
re e
mpl
oyee
s (s
econ
dca
tego
ry p
erso
ns in
sure
d) a
nd th
eir f
ull-t
ime
wiv
es.
Em
piric
al m
etho
ds
(1) R
ate
of n
on-p
aym
ent o
f pen
sion
cont
ribut
ions
: OLS
est
imat
e by
mea
ns o
f OLS
estim
ate
met
hod
and
Coc
hran
-Orc
utt m
etho
d,an
d (2
) rat
e of
non
-par
ticip
atio
n: O
LS e
stim
ate
(1) R
ate
of c
ontri
butio
n: G
LS e
stim
ate,
and
(2) p
resc
ribed
insu
ranc
e pr
emiu
m: H
eckm
anm
odel
com
bini
ng P
robi
t (on
whe
ther
eve
n on
eye
n is
pai
d) w
ith T
obit
(on
wha
t per
cent
of t
hepr
emiu
m is
pai
d) (r
ight
-cen
sore
d at
100
%co
ntrib
utio
n)
Est
imat
e on
a b
ivar
iate
Pro
bit m
odel
to a
llow
for p
artic
ipat
ion
in b
oth
pers
onal
pen
sion
syst
ems
and
the
Nat
iona
l Pen
sion
Est
imat
e on
a P
robi
t-with
-sel
ectio
n m
odel
toal
low
for p
artic
ipat
ion
in, a
nd c
ontri
butio
n to
,th
e N
atio
nal P
ensi
on. T
hose
with
the
larg
est
earn
ings
in th
e ho
useh
olds
are
div
ided
from
othe
r mem
bers
in th
e m
easu
rem
ent.
Poo
led
OLS
est
imat
e (y
ear d
umm
y us
ed)
Est
imat
e of
the
time
of n
on-p
artic
ipat
ion
in th
eN
atio
nal P
ensi
on w
ith th
e ag
e of
20
as T
ime
=0
on a
haz
ard
mod
el (w
ith p
artic
ipat
ing
in th
eN
atio
nal P
ensi
on a
s an
eve
nt).
Est
imat
edac
cord
ing
to m
ale
and
fem
ale,
and
acc
ordi
ngto
coh
orts
(on
a st
ratif
ied
mod
el fo
r the
latte
r).
Exp
lain
ed v
aria
ble
Rat
e of
non
-pay
men
t of c
ontri
butio
ns =
rate
of
exem
ptio
n fro
m o
blig
atio
n of
con
tribu
tion
+ (1
– ra
te o
f suc
h ex
empt
ion)
x (1
– ra
te o
fco
nfirm
ed c
ontri
butio
ns),
and
rate
of n
on-
parti
cipa
nts
(est
imat
e eq
uatio
ns d
iffer
ent f
rom
year
to y
ear)
A) H
ouse
hold
s w
hose
con
tribu
tions
are
not
with
held
from
inco
me
at s
ourc
e: (1
) rat
e of
cont
ribut
ion
(am
ount
of i
nsur
ance
pre
miu
ms
paid
/ so
cial
insu
ranc
e pr
emiu
m e
stim
ated
on
the
assu
mpt
ion
that
eve
ryon
e in
sure
d by
the
Nat
iona
l Pen
sion
sys
tem
is re
ques
ted
to m
ake
cont
ribut
ions
to th
e sy
stem
(ful
l-con
tribu
tion
insu
ranc
e pr
emiu
m),
and
(2) p
resc
ribed
insu
ranc
e pr
emiu
m ra
te (r
ate
of p
aym
ent
base
d on
whe
ther
eve
n on
e ye
n is
pai
d fo
rso
cial
insu
ranc
e an
d w
ith th
e up
per l
imit
of 1
);an
d B)
hou
seho
lds
who
se c
ontri
butio
ns a
rew
ithhe
ld fr
om in
com
e at
sou
rce:
(3) r
ate
ofco
llect
ion
(sha
res
of s
ocia
l ins
uran
cepr
emiu
ms
paid
/ es
timat
ed s
ocia
l ins
uran
cepr
emiu
ms)
(1) P
artic
ipat
ing
in p
erso
nal p
ensi
on s
yste
m,
and
(2) p
artic
ipat
ing
in th
e N
atio
nal P
ensi
onP
artic
ipat
ion
in th
e N
atio
nal P
ensi
on, a
ndw
heth
er o
r not
con
tribu
tions
to th
e pe
nsio
nsy
stem
are
mad
e (n
ot th
e am
ount
of
cont
ribut
ions
mad
e). T
he d
efin
ition
of n
on-
cont
ribut
or is
“one
who
is ta
xed
on h
is o
r her
inco
me,
but
doe
s no
t pay
any
, or e
ven
one
yen
of, i
nsur
ance
pre
miu
ms
(* in
clud
ing
ones
with
spe
cial
exe
mpt
ion)
”.
(1) R
ate
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
cont
ribut
ions
(= 1
00 –
rate
of c
onfir
med
cont
ribut
ions
), an
d (2
) Rat
e of
non
-pay
men
t of
Nat
iona
l Hea
lth In
sura
nce
prem
ium
s (=
100
–ra
te o
f con
firm
ed p
aym
ent)
Tim
e fro
m th
e ag
e of
20
to p
artic
ipat
ion
in th
eN
atio
nal P
ensi
on s
yste
m. T
hose
und
er s
tudy
are:
(1) f
irst c
ateg
ory
pers
ons
insu
red
(occ
urre
nce
of e
vent
), (2
) sec
ond
cate
gory
pers
ons
insu
red
(trun
catio
n), (
3) th
ird c
ateg
ory
pers
ons
insu
red
(trun
catio
n), a
nd (4
) non
-pa
rtici
patio
n co
ntin
ued
(non
-occ
urre
nce
ofev
ent).
Tabl
e 1
Em
piric
al a
naly
sis
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
con
tribu
tions
, etc
.
Evasion of National Pension Contributions and Hyperbolic Time Discounting
33
(a) O
gura
and
Chi
ba (1
991)
(b) O
gura
and
Kad
oda
(200
0) (c
) Suz
uki a
nd Z
hou
(200
1)(d
) Abe
(200
1)(e
) Kom
amur
a (2
001)
(f) A
be (2
003)
Expl
anat
ory
varia
bles
(1) R
ate
of n
on-p
aym
ent:
Nat
iona
l Pen
sion
Insu
ranc
e pr
emiu
m ra
te re
lativ
e to
ave
rage
inco
me
of th
e se
lf-em
ploy
ed; a
nd (2
) rat
e of
non-
parti
cipa
tion:
rela
tive
prem
ium
rate
of
Nat
iona
l Pen
sion
Insu
ranc
e, ra
te o
fco
mpu
lsor
y pa
rtici
patio
n in
Em
ploy
ees’
Pen
sion
Insu
ranc
e), r
atio
of j
ob s
eeke
rs to
job
open
ings
, rat
io o
f ave
rage
ben
efit
of th
eE
mpl
oyee
s’ P
ensi
on In
sura
nce
to th
at o
f the
Nat
iona
l Pen
sion
, and
yea
r dum
my
for 1
985
(yea
r of p
ensi
on re
form
s)
(1) R
ate
of c
ontri
butio
n: s
ocia
l ins
uran
cepr
emiu
m /
soci
al in
sura
nce
prem
ium
est
imat
edon
the
assu
mpt
ion
that
eve
ryon
e in
sure
d by
the
Nat
iona
l Pen
sion
sys
tem
is re
ques
ted
tom
ake
cont
ribut
ions
to th
e sy
stem
(ful
l-co
ntrib
utio
n in
sura
nce
prem
ium
), 1
/ ful
l-co
ntrib
utio
n in
sura
nce
prem
ium
, sav
ings
(est
imat
ed) /
full-
cont
ribut
ion
insu
ranc
epr
emiu
m, t
he n
umbe
r of h
ouse
hold
mem
bers
,du
mm
y fo
r sin
gle-
pers
on h
ouse
hold
, dum
my
for t
he jo
b ty
pe o
f the
hea
d of
hou
seho
ld,
dum
my
for t
he jo
b ty
pe o
f a s
pous
e, s
ex, a
ge,
plac
e of
resi
denc
e, d
umm
y fo
r the
birt
h ye
ar o
fth
e he
ad o
f hou
seho
ld, d
umm
y fo
r the
hea
d of
hous
ehol
d’s
cons
ciou
snes
s of
hea
lth; a
nd (2
)pr
escr
ibed
insu
ranc
e pr
emiu
m: (
Prob
ites
timat
e) in
com
e, in
com
e of
the
prev
ious
yea
r(?
), du
mm
y fo
r the
job
type
of t
he h
ead
ofho
useh
old,
and
ditt
o, (
Tobi
t est
imat
e) s
ame
as th
e eq
uatio
n fo
r est
imat
ing
the
rate
of
cont
ribut
ion
Age
, une
mpl
oym
ent/n
on-e
mpl
oym
ent,
hous
ehol
d in
com
e ex
clud
ing
the
indi
vidu
al’s
own
inco
me,
fina
ncia
l ass
ets
excl
udin
gpe
rson
al p
ensi
ons,
real
ass
ets,
suf
ferin
g fro
m/ p
rone
to d
isea
se, e
duca
tiona
l bac
kgro
und,
sex,
siz
e of
city
/tow
n/vi
llage
(* o
nly
in c
ase
ofth
e N
atio
nal P
ensi
on p
artic
ipan
t mod
el)
(1) P
artic
ipat
ion:
insu
ranc
e pr
emiu
m ra
te,
sex,
age
gro
up, p
ositi
on in
corp
orat
ion/
orga
niza
tion,
par
ticip
atio
n in
priv
ate
pens
ion
syst
ems,
pop
ulat
ion
size
of
plac
e of
resi
denc
e; a
nd (2
) con
tribu
tion:
insu
ranc
e pr
emiu
m ra
te, s
ex, a
ge (*
not
age
grou
p), p
artic
ipat
ion
in p
rivat
e pe
nsio
nsy
stem
s, p
opul
atio
n si
ze o
f pla
ce o
f res
iden
ce
(1) R
ate
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
cont
ribut
ions
: con
sum
ptio
n, e
ffect
ive
ratio
of
job
seek
ers
to jo
b op
enin
gs, p
ropo
rtion
of
stud
ents
who
go
on to
uni
vers
ities
/col
lege
s,ra
tio o
f the
pop
ulat
ion
aged
20-
24 to
the
tota
lpo
pula
tion,
pop
ulat
ion
conc
entra
tion;
and
(2)
rate
of n
on-p
aym
ent o
f Nat
iona
l Hea
lthIn
sura
nce
prem
ium
s: th
e ex
plai
ned
varia
ble
in(1
) exc
ludi
ng th
e pr
opor
tion
of s
tude
nts
who
go o
n to
uni
vers
ities
/col
lege
s, a
nd th
epr
opor
tion
of th
e po
pula
tion
aged
20-
24 to
the
tota
l pop
ulat
ion
Dum
my
for s
tude
nt, d
umm
y fo
r stu
dent
sin
ce19
88 (c
ompu
lsor
y pa
rtici
patio
n fo
r stu
dent
ssi
nce
this
yea
r), d
umm
y fo
r Cat
egor
y I i
nsur
edby
the
Nat
iona
l Pen
sion
with
or w
ithou
t asp
ouse
, dum
my
for C
ateg
ory
II in
sure
d by
the
Nat
iona
l Pen
sion
with
or w
ithou
t a s
pous
e(w
ithou
t-a-s
pous
e, o
r with
-a-s
pous
e w
ho is
not
Cat
egor
y I o
r II i
nsur
ed, i
s se
t as
a ba
sis)
,du
mm
y fo
r reg
ular
em
ploy
men
t, du
mm
y fo
rno
n-re
gula
r em
ploy
men
t (i.e
., pa
rt-tim
ers,
tem
pora
ry w
orke
rs, w
orke
rs s
ent f
rom
labo
rag
enci
es, c
ontra
ct w
orke
rs, a
nd e
ntru
sted
wor
kers
)
Polic
y im
plic
atio
ns
The
mai
n ca
use
is in
crea
ses
in th
e in
sura
nce
prem
ium
rate
. Thu
s, if
a s
ubst
antia
lly v
olun
tary
parti
cipa
tion
syst
em is
mai
ntai
ned,
the
rate
of
non-
paym
ent w
ill in
crea
se e
ach
time
the
Nat
iona
l Pen
sion
insu
ranc
e ra
te is
incr
ease
d.
Rap
id in
crea
ses
in th
e so
cial
insu
ranc
ebu
rden
hav
e de
crea
sed
the
rate
of
cont
ribut
ion
in h
ouse
hold
s w
hose
cont
ribut
ions
are
not
with
held
from
inco
me
atso
urce
by
mor
e th
an 2
0%. P
artic
ular
ly, t
hey
have
cau
sed
man
y yo
unge
r peo
ple
to d
rop
out
of s
ocia
l ins
uran
ce s
yste
ms.
Abo
litio
n of
the
requ
irem
ent o
f 25-
year
parti
cipa
tion;
exp
ansi
on o
fre
duct
ion/
exem
ptio
n of
insu
ranc
e pr
emiu
ms;
and
exte
nsio
n of
vol
unta
ry p
artic
ipat
ion
perio
d
Non
-par
ticip
atio
n an
d no
n-pa
ymen
t are
stru
ctur
ally
diff
eren
t fro
m e
ach
othe
r. Li
quid
ityco
nstra
int a
ffect
s co
ntrib
utio
n on
ly, s
o th
ein
trodu
ctio
n of
a h
alf-e
xem
ptio
n sy
stem
may
impr
ove
an in
vers
e-pr
ogre
ssiv
enes
s of
the
insu
ranc
e pr
emiu
m ra
te s
yste
m in
the
low
inco
me
grou
ps.
Con
sum
ptio
n as
a p
roxy
indi
cato
r for
the
capa
city
to b
ear t
he e
cono
mic
bur
den
has
nosi
gnifi
cant
effe
ct. T
his
is b
ecau
se N
atio
nal
Hea
lth In
sura
nce
prem
ium
s in
volv
e a
fact
orco
rres
pond
ing
to th
e ca
paci
ty o
f bea
ring
burd
ens,
and
bec
ause
it is
sho
rt-te
rmin
sura
nce.
How
ever
, the
mai
n ca
uses
for t
hein
sign
ifica
nce
of c
onsu
mpt
ion
are
the
risk
sele
ctio
n ta
king
adv
anta
ge o
f the
lack
of
effe
ctiv
enes
s of
com
puls
ory
parti
cipa
tion,
and
the
burd
en o
f pen
sion
con
tribu
tions
; and
the
incr
ease
in th
e pr
opor
tion
of b
urde
n of
cont
ribut
ion
paym
ent i
s no
t the
onl
y cr
itica
lca
use.
Effe
cts
of n
on-e
mpl
oym
ent o
r reg
ular
/non
-re
gula
r em
ploy
men
t are
gre
ater
than
that
of
dist
rust
in th
e sy
stem
(no
coho
rt ef
fect
reco
gniz
ed fo
r tho
se a
ged
30 a
nd h
ighe
r). It
isim
porta
nt to
lead
you
ng p
eopl
e in
to th
eco
nditi
on w
here
they
can
join
pen
sion
syst
ems.
Not
e: T
his
tabl
e on
ly fo
cuse
s on
the
parts
of e
ach
repo
rt th
at a
re re
late
d to
an
empi
rical
ana
lysi
s of
non
-pay
men
t of N
atio
nal P
ensi
on c
ontri
butio
ns; a
ny fi
ndin
gs th
at a
re n
ot re
late
d to
it a
re n
ot d
iscu
ssed
, how
ever
impo
rtant
they
are
in o
ther
con
text
s.N
ote
that
som
e of
the
repo
rts s
et c
ontri
butio
n (p
artic
ipat
ion)
= 1
as
an e
xpla
nato
ry v
aria
ble,
so
the
sign
of t
he e
xpla
nato
ry v
aria
ble
mea
ns th
e re
vers
e.
Tabl
e 1
Em
piric
al a
naly
sis
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
con
tribu
tions
, etc
.(con
tinue
d)
A) H
ouse
hold
who
se c
ontri
butio
ns a
re n
otw
ithhe
ld fr
om in
com
e at
sou
rce:
(1) r
ate
ofco
ntrib
utio
n: h
ouse
hold
inco
me
(+:
cont
ribut
ion ↑
); fin
anci
al a
sset
s of
hou
seho
ld(+
); or
dina
ry fu
ll-tim
e em
ploy
ee, c
ontra
ctw
orke
r/pie
cew
orke
r at h
ome/
othe
r,un
empl
oyed
(-: c
ompa
red
with
sel
f-em
ploy
ed);
dum
my
for b
irth
year
insi
gnifi
cant
(par
tially
sign
ifica
nt, p
. 103
); de
terio
rate
d he
alth
cond
ition
(-),
and
(2) p
resc
ribed
insu
ranc
epr
emiu
m ra
te: (
Prob
it pa
rt) lo
garit
hm o
fin
com
e (+
), lo
garit
hm o
f inc
ome
of th
epr
evio
us y
ear (
?) (+
), un
empl
oyed
(-);
new
erco
horts
mor
e in
clin
ed to
pay
no
soci
alin
sura
nce
cont
ribut
ion
at a
ll; (T
obit
part)
the
high
est h
ouse
hold
inco
me
(+),
savi
ngs
bala
nce
(-),
unem
ploy
ed, b
usin
esse
s w
ith 3
0or
less
mem
bers
, con
tract
wor
ker/p
iece
wor
ker
at h
ome/
othe
r job
s (-
); no
dec
reas
e in
the
rate
of c
ontri
butio
n of
you
ng c
ohor
ts if
they
mak
e a
cont
ribut
ion
of e
ven
one
yen;
sin
gle-
pers
onho
useh
old
(+)
B) H
ouse
hold
who
se c
ontri
butio
ns a
rew
ithhe
ld fr
om in
com
e at
sou
rce:
(3) r
ate
ofco
llect
ion:
the
reas
ons
why
hou
seho
ld in
com
eis
ext
rem
ely
low
and
sig
nific
antly
neg
ativ
e is
at t
Rat
e of
non
-pay
men
t: a
1% ri
se in
the
rela
tive
rate
of N
atio
nal P
ensi
on in
sura
nce
prem
ium
sle
ads
to a
4%
rise
in th
e ra
te o
f non
-pay
men
t;an
d ra
te o
f non
-par
ticip
atio
n: a
1%
rise
in th
ere
lativ
e ra
te o
f Nat
iona
l Pen
sion
insu
ranc
epr
emiu
ms
lead
s to
a 3
% ri
se in
the
rate
of
non-
parti
cipa
tion
in th
e N
atio
nal P
ensi
on, a
1% ri
se in
the
rate
of c
ompu
lsor
y pa
rtici
patio
nin
Em
ploy
ees’
Pub
lic P
ensi
on s
yste
ms
lead
sto
a 0
.6%
fall
in th
e ra
te o
f non
-par
ticip
atio
n in
the
Nat
iona
l Pen
sion
, a ri
se o
f the
ratio
of j
obs
to a
pplic
ants
by
1 (th
e fig
ure
indi
cate
sef
fect
ive
open
ing
post
(s) p
er p
erso
n) le
ads
toa
3.5%
fall
in th
e ra
te o
f non
-par
ticip
atio
n in
the
Nat
iona
l Pen
sion
, and
a ri
se b
y 50
% o
f the
ratio
of a
vera
ge b
enef
it of
the
Em
ploy
ees’
Pen
sion
Insu
ranc
e to
that
of t
he N
atio
nal
Pen
sion
lead
s to
a 7
% fa
ll in
the
rate
of n
on-
parti
cipa
tion
in th
e N
atio
nal P
ensi
on
Res
ults
Bot
h fa
ctor
s w
ere
conf
irmed
to b
e si
gnifi
cant
,bu
t the
adv
erse
sel
ectio
n fa
ctor
had
a h
ighe
rex
plai
ning
pow
er. (
* Th
is is
a s
impl
e lik
elih
ood
ratio
, so
it sh
ould
be
care
fully
inte
rpre
ted
ifva
riabl
es in
an
estim
ate
equa
tion
are
not
orth
ogon
al.)
It w
as c
onfir
med
that
ther
e is
atu
rnin
g po
int d
ue to
25-
year
par
ticip
atio
n (i.
e.,
a sh
arp
decl
ine
in th
e ra
te o
f non
-par
ticip
atio
nin
the
age
grou
p of
35-
39, s
een
in a
bar
grap
h).
(1) L
iqui
dity
con
stra
int (
this
affe
cts
cont
ribut
ion
only
), (2
) ins
titut
iona
l fac
tors
(N s
hape
for
parti
cipa
tion
by a
ge),
(3) c
omm
unity
fact
ors
(sys
tem
atic
effe
ct o
n no
n-pa
rtici
patio
n, a
nd U
shap
e fo
r non
-pay
men
t), a
nd (4
) adv
erse
sele
ctio
n fa
ctor
(life
insu
ranc
e ha
s a
posi
tive
effe
ct o
n bo
th p
artic
ipat
ion
and
cont
ribut
ion,
but p
erso
nal p
ensi
ons
are
insi
gnifi
cant
(i.e
.,al
tern
ativ
e hy
poth
esis
reje
cted
)
(1) R
ate
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
cont
ribut
ions
: con
sum
ptio
n, e
ffect
ive
ratio
of
job
seek
ers
to jo
b op
enin
gs, a
nd p
ropo
rtion
of
stud
ents
who
go
on to
uni
vers
ities
/col
lege
s,si
gnifi
cant
ly d
ecre
ase
the
rate
of c
ontri
butio
n;bu
t hig
h po
pula
tion
conc
entra
tions
sig
nific
antly
incr
ease
it; s
harp
rise
s in
the
rate
of n
on-
paym
ent i
n 19
97 a
nd 1
998;
and
(2) r
ate
ofno
n-pa
ymen
t of N
atio
nal H
ealth
Insu
ranc
epr
emiu
ms:
con
sum
ptio
n do
es n
ot a
ffect
this
,bu
t pop
ulat
ion
conc
entra
tion
has
asi
gnifi
cant
ly n
egat
ive
effe
ct o
n it
No
coho
rt ef
fect
is re
cogn
ized
. The
dum
my
for
regu
lar e
mpl
oym
ent d
ecre
ases
haz
ards
topa
rtici
patio
n (b
ecau
se it
bel
ongs
to th
e se
cond
cate
gory
). Th
e du
mm
y fo
r non
-reg
ular
empl
oym
ent i
ncre
ases
haz
ards
to p
artic
ipat
ion
(bec
ause
it b
elon
gs to
the
first
cat
egor
y). F
orse
cond
cat
egor
y pe
rson
s in
sure
d w
ith a
spou
se in
the
seco
nd c
ateg
ory,
onl
y m
ales
show
a p
ositi
ve s
igni
fican
t effe
ct (i
.e.,
haza
rds
to p
artic
ipat
ion
incr
ease
d), w
hich
is th
eco
nver
se o
f the
ass
umpt
ion
(* in
oth
er w
ords
,it
does
not
rest
rain
par
ticip
atio
n).
Government Auditing Review VOLUME15 (MARCH 2008)
34
(g) M
aruy
ama
and
Kom
amur
a (2
005)
(h) S
uzuk
i and
Zho
u (2
005)
(i) N
akas
him
a, U
suki
and
Kita
mur
a (2
005)
(j) N
akas
him
a an
d U
suki
(200
5) (k
) Tsu
kaha
ra (2
005)
Pur
pose
To a
naly
ze w
heth
er a
typi
cal w
orke
rs (r
epre
sent
ed b
y“p
ropo
rtion
of c
olle
ge g
radu
ates
who
wor
k as
ate
mpo
rary
wor
ker”
as
a pr
oxy)
and
the
unem
ploy
ed(r
epre
sent
ed b
y “n
on-e
mpl
oyed
hig
h-sc
hool
grad
uate
s” a
nd “n
on-e
mpl
oyed
col
lege
gra
duat
es” a
s a
prox
y) a
re p
rone
to b
e no
n-co
ntrib
utor
s, w
ithdi
vers
ified
mod
es o
f wor
k. In
add
ition
, to
stud
y w
heth
era
high
er in
com
e le
ads
to a
low
er ra
te o
f non
-pay
men
t,an
d w
heth
er a
hig
her r
ate
of y
oung
peo
ple
(rep
rese
nted
by
the
rate
of p
eopl
e in
thei
r 30s
) lea
ds to
a hi
gher
rate
of n
on-p
aym
ent.
Diff
eren
t fro
m A
be (2
004)
(Abe
use
d da
ta m
ainl
y on
hous
ewiv
es in
thei
r 30s
, with
stu
dent
s an
d ot
her
hous
ehol
d m
embe
rs th
an th
e he
ads)
, thi
s is
to a
naly
zew
heth
er c
ohor
t effe
cts
may
be
asce
rtain
ed o
n ge
nera
lda
ta. I
n ad
ditio
n, to
stu
dy w
heth
er th
ere
is a
sha
rp ri
sein
the
rate
of p
artic
ipat
ion
arou
nd th
e ag
e of
35,
whi
chis
the
olde
st a
ge a
t whi
ch th
e re
quire
men
t of 2
5-ye
arpa
rtici
patio
n ca
n be
met
.
To s
tudy
eig
ht c
ause
s of
non
-pay
men
t of N
atio
nal
Pens
ion
cont
ribut
ions
: (1)
liqu
idity
con
stra
int (
low
inco
me)
, (2)
liqu
idity
con
stra
int (
othe
r use
s), (
3)ad
vers
e se
lect
ion
(sho
rter l
ife),
(4) h
igh
risk
tole
ranc
e(to
lera
nce
for c
hang
es in
con
sum
ptio
n), (
5)su
bjec
tivel
y hi
gh d
isco
unt r
ate,
(6) h
ighl
y hy
perb
olic
disc
ount
ing
(sub
ject
ivel
y hi
gher
dis
coun
t rat
e fo
r nea
rfu
ture
than
far f
utur
e), (
7) a
bund
ant f
unds
inpr
epar
atio
n fo
r old
age
, and
(8) u
ncer
tain
ness
and
dist
rust
in th
e sy
stem
.
In v
iew
of t
he fa
ct th
at th
e no
n-pa
ymen
t of N
atio
nal
Pens
ion
cont
ribut
ions
is n
ot s
uffic
ient
ly e
xpla
ined
with
the
econ
omic
cap
acity
to p
ay (i
.e.,
liqui
dity
con
stra
int),
this
is to
stu
dy fo
ur c
ause
s of
non
-con
tribu
tion:
(1)
hast
ines
s (h
yper
bolic
tim
e di
scou
ntin
g: s
ubje
ctiv
ely
high
er d
isco
unt r
ate
for n
ear f
utur
e th
an fa
r fut
ure)
, (2)
pers
onal
risk
tole
ranc
e (i.
e., n
o ne
ed to
rece
ive
ape
nsio
n in
the
futu
re is
per
ceiv
ed),
(3) a
feel
ing
ofob
ligat
ion
of c
ontri
butio
ns (o
ne a
void
s m
akin
gco
ntrib
utio
n w
hen
one
feel
s it
is a
loss
rath
er th
an a
nob
ligat
ion)
, and
(4) s
ubje
ctiv
e lif
e sp
an (a
dver
sese
lect
ion
fact
or).
To
anal
yze
whe
ther
ther
e ex
ists
adv
erse
sel
ectio
n by
com
parin
g th
e ac
tual
sta
tes
of p
artic
ipat
ion
in p
ublic
pens
ions
and
per
sona
l pen
sion
s or
peo
ple’
s in
tent
ion
of p
artic
ipat
ion
in p
ublic
pen
sion
sys
tem
s if
it is
disc
retio
nary
with
the
risks
.
Dat
a
(1) D
ata
aggr
egat
ed a
t the
pre
fect
ure
leve
l, su
ch a
sB
asic
Sch
ool S
urve
ys a
nd A
nnua
l Rep
orts
of
Pre
fect
ural
Acc
ount
s, m
ade
into
pan
els;
and
(2) D
ata
aggr
egat
ed a
t the
mun
icip
al le
vel,
such
as
Pens
ion
inN
umbe
rs, N
atio
nal C
ensu
s, S
urve
y on
Tax
atio
n by
Citi
es, T
owns
and
Villa
ges,
and
Pop
ulat
ion
Estim
ates
Surv
ey o
n H
ouse
hold
Eco
nom
y an
d S
avin
gs (1
998,
2000
, 200
2 an
d 20
04) b
y th
e P
osta
l Ser
vice
sR
esea
rch
Inst
itute
, i.e
., da
ta o
n in
divi
dual
s (c
olle
cted
by s
ampl
ing
hous
ehol
ds w
ith th
e he
ads
aged
20
orhi
gher
, with
an
effe
ctiv
e re
spon
se ra
te o
f aro
und
62%
for a
ll ye
ars)
Subj
ects
of e
xper
imen
ts o
f beh
avio
ral e
cono
my:
(1) 5
5sa
mpl
es o
f stu
dent
s of
Y s
tate
-run
uni
vers
ity, (
2) 5
6sa
mpl
es g
athe
red
thro
ugh
a w
orki
ng s
tude
nt’s
job
site
calle
d W
eb-a
n pr
ovid
ed b
y G
akus
ei E
ngok
ai C
o., L
td.,
and
(3) s
ampl
es (5
5 no
n-pa
rtici
pant
sam
ples
with
no
cont
ribut
ion
+ 53
sel
f-em
ploy
ed s
ampl
es) g
athe
red
thro
ugh
the
Sur
vey
Res
earc
h C
ente
r. A
que
stio
nnai
resu
rvey
was
con
duct
ed o
n th
ose
subj
ects
gat
here
dth
roug
h th
ose
thre
e ro
utes
afte
r the
exp
erim
ents
inJa
nuar
y an
d Fe
brua
ry 2
005
ende
d.
(* S
ame
as th
e le
ft)3,
500
mal
e an
d fe
mal
e sa
mpl
es o
f sel
f-em
ploy
edpe
ople
(whe
re fr
eela
ncer
s an
d m
anag
ers
belo
ng to
the
sam
e ca
tego
ry) a
ged
20 o
r hig
her e
xtra
cted
from
the
mas
ter s
ampl
es o
f Cen
tral R
esea
rch
Ser
vice
s, In
c.,
with
a re
cove
ry ra
te o
f 51%
, (i.e
., 1,
799
sam
ples
),im
plem
ente
d in
Feb
ruar
y an
d M
arch
199
7
Sam
ples
ana
lyze
d
(1) D
ata
aggr
egat
ed a
t the
pre
fect
ure
leve
l: 19
94-
2002
, and
(2) d
ata
aggr
egat
ed a
t the
leve
l of c
ities
,to
wns
and
villa
ges:
199
4-20
01
(1) H
eads
of h
ouse
hold
s (w
hich
incl
ude
no s
tude
ntsa
mpl
es th
at a
ccou
nt fo
r mos
t of t
he n
on-p
artic
ipan
ts),
(2) h
eads
of h
ouse
hold
s ag
ed 2
0-59
, and
(3)
parti
cipa
nts
only
in th
e N
atio
nal P
ensi
on, o
r non
-pa
rtici
pant
s (2
,543
sam
ples
of p
artic
ipan
ts o
nly
in th
eN
atio
nal P
ensi
on +
non
-par
ticip
ants
(413
sam
ples
of
the
latte
r))
All t
he s
ampl
es in
the
abov
e fie
ld (S
ampl
es A
) and
apo
rtion
of t
hem
with
an
annu
al p
erso
nal i
ncom
e be
fore
taxe
s of
at l
east
1.3
milli
on y
en (S
ampl
es B
) wer
ean
alyz
ed. B
ecau
se o
f the
abo
ve-m
entio
ned
defin
ition
,Sa
mpl
es B
incl
uded
few
er s
tude
nts
but m
ore
self-
empl
oyed
, mor
e m
ales
and
mor
e pe
ople
age
d 35
or
mor
e th
an S
ampl
es A
.
Focu
sed
on th
ose
with
an
annu
al p
erso
nal i
ncom
ebe
fore
taxe
s of
at l
east
1.3
mill
ion
yen,
with
99
sam
ples
(inc
ludi
ng 3
1 sa
mpl
es w
ithou
t mak
ing
cont
ribut
ions
at a
ll), i
.e.,
13 s
ampl
es fe
wer
than
anal
yzed
by
the
repo
rt of
Nak
ajim
a, U
suki
and
Kita
mur
a (2
005)
.
Man
ager
s an
d se
lf-em
ploy
ed p
eopl
e, e
xclu
ding
empl
oyee
s of
priv
ate
corp
orat
ions
who
hav
e ch
ange
djo
bs, a
nd a
lso
limite
d to
the
age
of 6
5 or
mor
e (o
f 816
sam
ples
, 62
sam
ples
are
non
-par
ticip
ants
)
Em
piric
al m
etho
ds
(1) D
ata
acco
rdin
g to
the
pref
ectu
re: p
ool a
nd p
anel
estim
ate,
and
(2) d
ata
acco
rdin
g to
citie
s/to
wns
/villa
ges:
cro
ss-s
ectio
nal e
stim
ate
Prob
it es
timat
e w
ith a
rest
rictiv
e co
nditi
on th
at th
e su
mof
the
effe
cts
of th
ree
para
met
ers:
age
gro
up, c
ohor
tan
d ye
ar, s
houl
d be
1. A
lso,
an
estim
ate
base
d on
the
Prob
it m
odel
with
sam
ple
sele
ctio
n in
two
tiers
by
whe
ther
a s
ampl
e sh
ould
be
a pa
rtici
pant
in th
eN
atio
nal P
ensi
on, a
nd th
en, t
he p
erso
n be
com
es a
non-
parti
cipa
ntin
the
Nat
iona
lPen
sion
(1) M
ultip
le li
near
regr
essi
on a
naly
sis
(with
ste
pwis
ese
lect
ion
of v
aria
bles
), an
d (2
) sam
e as
the
abov
eO
nly
anal
ysis
by
mea
ns o
f a c
ross
-agg
rega
tion
tabl
eEs
timat
e ba
sed
on L
ogit
mod
el
Exp
lain
ed v
aria
ble
(1) R
ate
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
cont
ribut
ions
(ana
lysi
s ba
sed
on d
ata
aggr
egat
ed a
tth
e pr
efec
ture
leve
l), a
nd (2
) rat
e of
con
firm
edco
ntrib
utio
ns (a
naly
sis
base
d on
dat
a ag
greg
ated
at
the
leve
l of c
ities
, tow
ns a
nd v
illag
es)
Whe
ther
one
is a
war
e of
his
or h
er n
on-p
artic
ipat
ion.
This
is d
iffer
ent f
rom
the
defin
ition
of t
he S
ocia
lIn
sura
nce
Age
ncy.
(* If
one
has
mad
e ev
en o
neco
ntrib
utio
n in
the
past
, he
or s
he is
con
side
red
as a
non-
cont
ribut
or b
ut n
ot a
non
-par
ticip
ant a
ccor
ding
toth
e de
finiti
on o
f the
Age
ncy.
)
(1) P
aym
ent h
isto
ry o
f Nat
iona
l Pen
sion
insu
ranc
epr
emiu
ms
in th
e pa
st 2
4 m
onth
s in
clud
ing
the
mon
ths
for w
hich
exe
mpt
ion
or s
peci
al e
xem
ptio
n fo
r stu
dent
sis
form
ally
app
rove
d (1
: ful
l pay
men
t of p
rem
ium
s fo
r24
mon
ths
to 5
: no
paym
ent o
f the
m a
t all)
, and
(2)
inte
ntio
n of
pay
men
t on
the
assu
mpt
ion
of v
olun
tary
parti
cipa
tion
(1: c
erta
inly
will
pay,
5: c
erta
inly
will
not
pay)
(1) P
aym
ent h
isto
ry fo
r the
pas
t tw
o ye
ars,
and
(2)
inte
ntio
n of
pay
men
t on
the
assu
mpt
ion
of v
olun
tary
parti
cipa
tion
(* S
ame
as th
e le
ft)
(1) P
artic
ipat
ion
in p
ublic
pen
sion
s (p
artic
ipat
ion
= 1)
,(2
) par
ticip
atio
n on
the
assu
mpt
ion
of v
olun
tary
parti
cipa
tion
(par
ticip
atio
n =
1), a
nd (3
) par
ticip
atio
n in
pers
onal
pen
sion
s
Tabl
e 1
Em
piric
al a
naly
sis
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
con
tribu
tions
, etc
.(con
tinue
d)
Evasion of National Pension Contributions and Hyperbolic Time Discounting
35
(g) M
aruy
ama
and
Kom
amur
a (2
005)
(h) S
uzuk
i and
Zho
u (2
005)
(i) N
akas
him
a, U
suki
and
Kita
mur
a (2
005)
(j) N
akas
him
a an
d U
suki
(200
5)(k
) Tsu
kaha
ra (2
005)
Exp
lana
tory
var
iabl
es
(1) E
stim
ate
by p
refe
ctur
e: n
on-e
mpl
oyed
hig
h-sc
hool
grad
uate
s, p
ropo
rtion
of c
olle
ge g
radu
ates
with
tem
pora
ry w
ork,
non
-em
ploy
ed c
olle
ge g
radu
ates
,in
com
e le
vel o
f the
pre
fect
ure,
pro
porti
on o
f peo
ple
inth
eir 3
0s, y
ear d
umm
y, a
nd (2
) Est
imat
e by
mun
icip
ality
: une
mpl
oym
ent r
ate,
inco
me
leve
l, ra
te o
fsi
ngle
-per
son
hous
ehol
ds, r
atio
of t
ertia
ry in
dust
ry,
prop
ortio
n of
peo
ple
in th
eir 3
0s
Dum
my
for u
nem
ploy
men
t/non
-em
ploy
men
t (w
hich
isex
clud
ed in
cas
e of
sam
ple
sele
ctio
n, w
here
100
%id
entif
ied)
, am
ount
of f
inan
cial
ass
ets,
hou
seho
ldin
com
e, s
ize
of c
ity, t
own
or v
illag
e, o
wni
ng a
hou
se,
num
ber o
f hou
seho
ld m
embe
rs. F
inan
cial
ass
ets
and
hous
ehol
d in
com
e w
ere
conv
erte
d to
real
val
ues
base
d on
the
cons
umer
pric
e in
dex
of 2
000.
(1) C
ontri
butio
n pa
ymen
t his
tory
: var
iabl
es to
corr
espo
nd to
hyp
othe
ses
1-8,
sex
, age
of 3
5 or
mor
e,or
not
, dum
my
for n
on-r
egul
ar e
mpl
oym
ent (
part-
timer
wor
kers
, tem
pora
ry w
orke
rs (e
xclu
ding
wor
king
stud
ents
), co
ntra
ct e
mpl
oyee
s, e
mpl
oyee
s se
nt b
yla
bor a
genc
ies)
, dum
my
for t
he m
arrie
d, d
umm
y fo
rho
useh
old
mem
ber,
and
(2) v
olun
tary
par
ticip
atio
n:sa
me
as th
e ab
ove
(Cro
ss-a
ggre
gate
d ta
ble)
inco
me,
age
, sub
ject
ive
disc
ount
rate
Sex,
age
, num
ber o
f chi
ldre
n, e
duca
tiona
l bac
kgro
und,
expe
cted
life
spa
n, p
artic
ipat
ion/
non-
parti
cipa
tion
inpe
rson
al p
ensi
ons,
hou
seho
ld in
com
e, o
wni
ng a
hou
se
Pol
icy
impl
icat
ions
The
syst
em c
an n
o lo
nger
acc
omm
odat
e ch
ange
s in
the
econ
omic
env
ironm
ent (
unem
ploy
men
t).Se
para
ting
the
effe
ct o
f age
from
the
coho
rt ef
fect
stil
ldo
es n
ot m
ake
it po
ssib
le to
con
firm
the
latte
r. It
was
conf
irmed
aga
in th
at th
ere
is a
not
ch a
t the
age
of
arou
nd 3
5.
The
caus
es c
an b
e ex
plai
ned
in th
e fra
mew
ork
oftra
ditio
nal e
cono
mic
s, s
o th
ey a
re n
ot a
nom
alie
s.H
owev
er, i
f the
re is
a p
ossi
bilit
y of
non
-par
ticip
ants
mis
unde
rsta
ndin
g fa
cts,
it s
houl
d be
cor
rect
ed b
ym
eans
suc
h as
pro
vidi
ng in
form
atio
n.
If o
ne h
as a
wro
ng s
ubje
ctiv
e vi
ew, t
he b
ehav
ior a
sm
entio
ned
abov
e ca
nnot
be
said
to b
e ra
tiona
l. C
orre
ctin
form
atio
n sh
ould
be
prov
ided
.
The
caus
e of
non
-par
ticip
atio
n in
pub
lic p
ensi
ons
isre
late
d to
eco
nom
ic c
apac
ity (n
o ad
vers
e se
lect
ion)
.Th
e ag
e va
riabl
e, s
igni
fican
t in
volu
ntar
y pa
rtici
patio
n,re
flect
s th
e ne
ar-s
ight
edne
ss a
nd u
nfai
rnes
s am
ong
gene
ratio
ns a
s ca
uses
of n
on-p
artic
ipat
ion.
Ifpa
rtici
patio
n in
pub
lic p
ensi
ons
is m
ade
on a
vol
unta
ryba
sis,
adv
erse
sel
ectio
n m
ay o
ccur
. For
per
sona
lpe
nsio
ns, t
he e
xpec
ted
life
span
is n
ot e
ffect
ive,
so
ther
e do
es n
ot o
ccur
a c
ause
of a
dver
se s
elec
tion
(i.e.
,no
pos
sibi
lity
of s
uffic
ient
life
pen
sion
).
Not
e th
at s
ome
of th
e re
ports
set
con
tribu
tion
(par
ticip
atio
n) =
1 a
s an
exp
lana
tory
var
iabl
e, s
o th
e si
gn o
f the
exp
lana
tory
var
iabl
e m
eans
the
reve
rse.
Tabl
e 1
Em
piric
al a
naly
sis
of n
on-p
aym
ent o
f Nat
iona
l Pen
sion
con
tribu
tions
, etc
.(con
tinue
d)
(1) C
ontri
butio
n pa
ymen
t his
tory
:Sa
mpl
es A
: ow
ning
a h
ouse
with
out l
oans
(-: n
on-
paym
ent ↓
), su
bjec
tive
life
span
(-),
Littl
e co
vera
ge o
fliv
ing
expe
nse
in o
ne’s
old
age
by
Nat
iona
l Pen
sion
bene
fit (+
: non
-pay
men
t ↑)
Sam
ples
B: h
igh
pers
onal
inco
me
befo
re ta
xes
(-: n
on-
paym
ent ↓
), su
bjec
tive
life
span
(-),
aver
age
ofre
lativ
e or
ders
of t
ime
pref
eren
ce ra
tes
(2) V
olun
tary
par
ticip
atio
n:Sa
mpl
es A
: ow
ning
a h
ouse
with
out l
oans
(-: n
oco
ntrib
utio
n pa
id ↓
), th
e m
ore
tax
paym
ent i
sim
porta
nt, t
he m
ore
one
is li
kely
to p
ay v
olun
taril
y, ri
skav
ersi
on (-
), ag
ree
with
the
view
that
Nat
iona
l Pen
sion
prem
ium
reve
nue
is u
sed
in w
aste
ful w
ays
(+),
in fa
vor
of a
larg
e re
duct
ion
in b
enef
its a
nd a
larg
e in
crea
se in
insu
ranc
e pr
emiu
ms
to m
aint
ain
the
Nat
iona
l Pen
sion
Syst
em (-
), tim
e pr
efer
ence
rate
for 8
00,0
00 y
en a
t the
poin
t of o
ne y
ear l
ater
(+: n
o co
ntrib
utio
n pa
id ↑
)Sa
mpl
es B
: per
sona
l inc
ome
befo
re ta
xes
(-: n
oco
ntrib
utio
n pa
id ↓
), th
e m
ore
tax
paym
ent i
sim
porta
nt, t
he m
ore
one
is li
kely
to p
ay v
olun
taril
y, ri
skav
ersi
on (-
), tim
e pr
efer
ence
rate
for 8
00,0
00 y
en a
tth
e po
int o
f one
yea
r lat
er (+
: no
cont
ribut
ion
paid
↑),
in
(1) B
y pr
efec
ture
: effe
ct o
f exp
ansi
on o
f aty
pica
l wor
kor
une
mpl
oym
ent t
o re
duce
the
rate
of c
ontri
butio
ns(p
artic
ular
ly, m
agni
tude
of t
he c
oeffi
cien
t of “
prop
ortio
nof
col
lege
gra
duat
es w
ith te
mpo
rary
wor
k”).
How
ever
,in
the
pane
l est
imat
e, th
e ef
fect
of t
he in
com
e le
vel o
fth
e pr
efec
ture
is n
ot s
tabl
e. (2
) By
mun
icip
ality
:un
empl
oym
ent r
ate
had
a hi
gher
effe
ct in
200
1. T
hesi
gn o
f the
pro
porti
on o
f peo
ple
in th
eir 3
0s c
hang
ed(i.
e., t
urne
d ne
gativ
e fo
r 200
1). I
ncre
ases
in th
epr
opor
tion
of s
ingl
e-pe
rson
hou
seho
lds
and
thos
e in
the
prop
ortio
n of
aty
pica
l wor
kers
(rep
rese
nted
by
the
“rat
io o
f ter
tiary
indu
stry
” in
Nat
iona
l Cen
sus
as a
prox
y he
re) b
oth
redu
ced
the
rate
of c
ontri
butio
npa
ymen
t.
The
dum
my
for u
nem
ploy
men
t/non
-em
ploy
men
t is
sign
ifica
ntly
+, f
inan
cial
ass
ets
-, ow
ning
hou
se +
, and
size
of c
ity, t
own
or v
illage
+. T
he c
oeffi
cien
t of t
hose
aged
35
or le
ss is
diff
eren
t fro
m th
ose
aged
ove
r 35,
so it
is a
scer
tain
ed th
at th
ere
is a
not
ch (a
sha
rpde
clin
e in
dica
ting
a le
tter V
) the
re. A
Wal
d te
st o
n su
chco
effic
ient
s su
ppor
ted
that
the
rate
of n
on-p
artic
ipan
tssh
arpl
y fa
lls a
ged
36. A
coh
ort e
ffect
was
not
reco
gniz
ed in
eith
er o
f the
mod
els.
(1) T
here
doe
s no
t app
ear t
o be
a p
artic
ular
rela
tions
hip
betw
een
the
hous
ehol
d in
com
e an
d no
n-pa
ymen
t, as
in G
over
nmen
t sur
veys
; you
nger
gene
ratio
ns te
nd to
avo
id m
akin
g pe
nsio
nco
ntrib
utio
ns m
ore;
no
clea
r rel
atio
n w
ith h
astin
ess
was
obs
erve
d. (2
) Hig
h ha
stin
ess
lead
s to
refra
inin
gfro
m v
olun
tary
par
ticip
atio
n. T
here
doe
s no
t app
ear t
obe
a c
lear
rela
tions
hip
of h
yper
bolic
dis
coun
ting
(sub
ject
ive
disc
ount
rate
at t
he p
oint
of 1
0 ye
ars
late
r –su
ch ra
te a
t the
poi
nt o
f one
yea
r lat
er) w
ith a
ctua
lco
ntrib
utio
n pa
ymen
t or v
olun
tary
par
ticip
atio
n. T
here
does
not
app
ear t
o be
a c
lear
rela
tions
hip
of o
ne’s
low
est p
roba
bilit
y of
rain
fall
in a
wea
ther
fore
cast
with
whi
ch o
ne w
ould
car
ry a
n um
brel
la w
ith a
ctua
l pen
sion
cont
ribut
ion
paym
ent o
r vol
unta
ry p
artic
ipat
ion.
The
shor
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text
s.
Government Auditing Review VOLUME15 (MARCH 2008)
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(i) Liquidity constraints The proxy indicator for this factor is different from paper to paper, such as the ratio of insurance premiums to the amount of consumption or income, personal income, or household income, however, almost all relevant studies recognize that liquidity constraints are a cause of non-payment to the National Pension. On the basis of such results, it is suggested that a more detailed premium schedule corresponding to income levels should be set.
(ii) Diversified modes of employment The proxy indicator for this factor is different from paper to paper, such as contract employees, non-regular employees, or tertiary industry workers. However, Ogura and Kadoda (2000), Abe (2003), and Maruyama and Komamura (2005) recognize that diversified modes of employment would significantly increase the probability of non-payment to the National Pension.
(iii) Unfairness among generations The cohort effect by which younger cohorts (groups according to their birth date) who have strong feeling of unfairness against the pension system are therefore more likely not to join the system, was analyzed and clearly shown by Ogura and Chiba (1991), and Suzuki and Zhou (2001). However, when Abe (2003), or Suzuki and Zhou (2005), performed a more precise analysis controlling the cohort effects, this did not render a significant result. Accordingly, there is room for argument about this effect.
(iv) The requirement of 25-year participation Suzuki and Zhou (2001, 2005), and Abe (2001), considered the age of 35 as the limit for qualifying for pension benefits, and examined whether people’s behavior regarding non-participation in the pension systems was different before and after that age. Both studies recognize that there is a turning point around the age of 35, and thus, the requirement of 25-year participation has an effect. On the basis of such results, it is suggested that this requirement should be abandoned.
(v) The propensity for risk aversion Nakajima, et al. (2005), used people’s lowest probability of rainfall in a weather forecast for which he or she would carry an umbrella (an assumed weather forecast), or a preferred saying as a proxy variable for this factor. The results show that the former is not significant, but that higher risk-aversion represented by a preferred saying would decrease the rate of non-payment to the pension system significantly.
(vi) Adverse selection Nakajima, et al. (2005), Nakajima and Usuki (2005), and Tsukahara (2005) used subjective expected lifespan as a proxy indicator for adverse selection, and all show that it is significant as a factor for non-participation, or for voluntary non-participation under an assumed situation, so they assert that adverse selection was ascertained.
(vii) Hyperbolic time discounting (an issue at the stage of information processing) Nakajima, et al. (2005) explicitly addressed this factor for the first time. As discussed above, if this factor is confirmed, it can theoretically be a rationale for mandatory pension systems. However, according to Nakajima, et al. (2005), this factor did not show such a significant effect as to support the hypothesis. However, Nakajima, et al. (2005) recognized that the higher the subjective time discount, the higher the probability of non-payment.
With respect to the issue of the adverse selection problem, there is, however, room for argument whether a subjective expected lifespan can be considered as a proxy indicator in an exact sense. That is because, as pointed out by Nakajima and Usuki (2005), a person’s subjective expected lifespan is not necessarily equal to his or her actual lifespan. Unless it is proved that people’s subjective expected lifespan coincide with, or are correlated to, their actual life spans, the difference between the subjective expected lifespan and the average expected lifespan may not be an appropriate proxy indicator for adverse selection, but should be considered as a lack of an individual’s long-term information. Even so, if either the effect of adverse selection or a lack of long-term information is ascertained, it can be a rationale for compulsory participation in the pension system.
Evasion of National Pension Contributions and Hyperbolic Time Discounting
37
3. Data and Analytical Framework (1) Data
We performed an empirical analysis of non-payment to the National Pension system on the basis of an individual level microdata set, especially related to the issue of hyperbolic time discounting. We used a data set from an original survey, Survey on Attitudes about Pensions (SAP), conducted in the Research Project on the Pension System to Accommodate to Diversified Modes of Employment, in which the authors took part.
This survey was designed to analyze non-payment (i.e. evasion) to the National Pension. It covered 2,600 males and 2,059 females across the country. Questionnaires were sent and received by post between September 30 and October 19, 2005. The effective response rate was 40% with about 1,000 samples obtained.
Of these, this paper uses 824 samples, excluding those with missing values, students and those who have already received public pension benefits. The 824 samples were divided into two groups: (I) A National Pension group (256 samples) and (II) Others (568 samples), for analysis.
(I) The National Pension group specifically consists of (Ia) National Pension participants, (Ib) non-participants in public pensions, and (Ic) National Pension non-contributors. (Ia) National Pension participants are defined as those who have joined the National Pension system, and pay, or are exempted from paying, monthly contributions. National Pension non-contributors are defined as an aggregation of (Ib) and (Ic), for the purpose of this paper.
(II) Others consist of category II insured persons (mainly regular employees of corporations or public organizations) who have joined Employees’ Pension Insurance or mutual aid associations’ pension systems, and category III insured persons who are dependents of category II insured person, as spouses. Hereinafter they are called an Employee group. (2) Analytical Framework and Hypotheses
The following empirical analysis consists of a Probit analysis on (I) National Pension group with actual contributions to the National Pension as dependent variable (non-payment = 1), and a Probit analysis on both (I) the National Pension group and (II) the Employee group who offered voluntary participation in response to the question “Would you participate in a public pension system if participation is on a voluntary basis (i.e., you can decide whether you join or not)” as an explained variable (voluntary non-participation = 1). In the present National Pension system, generally non-participation actually occurs only if a person fails to follow the procedure to join the system when he or she changes jobs. However, non-participation is the same as non-payment of contributions in that insurance premiums are not paid. It is difficult to distinguish non-payment from non-participation in the data. In this paper, therefore, non-payment of pension premiums is considered equivalent to non-contribution.
Following the prior studies, we selected independent variables to correspond to five hypotheses, excluding diverse modes of employment and unfairness among generations. Specifically the variables used were:11) (i) Liquidity constraints
A person’s income from his or her job (unit: 10,000 yen), in comparison with the average household income. It was expected that the lower a person’s income, the higher the probability of non-payment (or voluntary non-participation) (+).
(ii) The requirement of 25-year participation Whether it is possible for a person to satisfy the requirement of 25-year participation by the age of 60. If a person knows that he or she will not be able to satisfy such requirement for qualification for National Pension benefits, it is assumed that the probability of his or her non-payment (or voluntary non-participation) will rise (+).
11) For the factor of diversified modes of employment, it was impossible for the authors to obtain enough samples for analysis on the basis of positions in work from the data. Therefore, no variables for the hypothesis on that factor are included.
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(iii) The propensity for risk aversion A person’s lowest probability of rainfall in a weather forecast for which he or she would carry an umbrella, and whether a person invests in stocks. It is assumed that a person with a high propensity for risk aversion would carry an umbrella even when the probability of rainfall is low. Such a person would also refrain from investing in stocks. For such persons, the probability of non-payment (or voluntary non-participation) would be lower because they would like to avoid the risk of living without pension benefits in the future (-).
(iv) Adverse selection / lack of long-term information The gap between the subjective expected lifespan and the average expected lifespan. If the subjective expected lifespan is longer than the average expected lifespan, the probability of non-payment (or voluntary non-participation) would decline (-).
(v) Hyperbolic time discounting / issue in the stage of information processing The relationship among time discount rates for one week later, one year later and ten years later12) is divided into six categories: (a) larger than 20% for three points in time, (b) one week (more than 20%) > one year > 10 years, (c) one week (20% or less) > one year > ten years, (d) one week < one year < ten years, (e) no particular tendency, and (f) the same for three points in time. Among these, (a), (b) and (c) involve hyperbolic time discounting, so it is assumed that the probability of non-payment (or voluntary non-participation) would rise with (a), (b) or (c) (+). Those who fall into categories (d) or (e), could inter-temporarily maximize their utility inconsistently. For those who fall under (d), which induces inconsistent inter-temporal utility maximization, the probability of non-payment (or voluntary non-participant) could rather decline (-).
We pay special attention to the coefficients of the variables related to the hypotheses of (iv) and (v) as rationales
for compulsory participation in pension systems. If those coefficients take predicted signs (plus or negative), the hypotheses could be rationales for compulsory participation in pension systems.
Moreover, the state of assets (including participation in personal pensions), personal attributes (age, and married or single), local attributes, etc., were added as control variables.
Basic statistics for the variables for each group are shown in Table 2.
4. Empirical Results (1) Preliminary analysis of non-payment of National Pension contributions
In this paper, we intended to elucidate whether rationales exist for compulsory participation in pension insurance systems. As mentioned above, such rationales could be related to a lack of long-term information and defective information processing, and adopted two variables: subjective lifespan and hyperbolic time discounting as proxy indicators for these.
Before discussing the results of parametric analysis, we show the distributions of those two important variables concerning non-payment to the National Pension. Figure 2 shows the distribution of subjective expected life spans by age group and according to non-contributors and non-participants in the National Pension.
The first thing to be noted is that the percent of those who subjectively think that they will live longer than the average expected lifespan is smaller than those who subjectively think that they would live for shorter, for each age group. In other words, those in each of the age groups tend to subjectively think that they will live for shorter than the average expected lifespan.
12) Specifically, in the question: “Which would you think is better to receive (A) 10,000 yen today or (B) another amount after a certain period?”, three periods are set: one week, one year and ten years, and the choices of interest rates for (B) are 0%, 2%, 6%, 10% and 20% on 10,000 yen. Thus, in this paper, the interest rate chosen by the subject is considered as a time discount rate.
Evasion of National Pension Contributions and Hyperbolic Time Discounting
39
Table 2 Basic statistics
Mean [Std.Dev.] Mean [Std.Dev.]Non-payment of National Pension contributions(=1) 0.168 [0.374] … …Voluntary non-participation in public pensions(=1) 0.734 [0.442] 0.593 [0.491]Age 37.145 [11.25] 36.467 [10.22]Woman 0.371 [0.484] 0.511 [0.500]Junior-high school graduate 0.117 [0.322] 0.000 [0.000]Senior-high school graduate 0.523 [0.500] 0.428 [0.495]Junior-college or college-of-technology graduate 0.176 [0.381] 0.241 [0.428]University/College, or graduate-school graduates 0.184 [0.388] 0.296 [0.457]With spouse 0.426 [0.495] 0.613 [0.488]One's own income from a job (unit: 10,000 yen) 174.836 [202.3] 295.667 [255.6]Much lower than the average household income 0.305 [0.461] 0.106 [0.308]
0.035 [0.185] 0.026 [0.160]
Category III insured … … 0.225 [0.418]Employed 0.254 [0.435] 0.121 [0.327]Gap from the average expected life span (years) -6.848 [11.43] -5.894 [8.452]
0.471 [0.194] 0.505 [0.189]
No stock investment 0.457 [0.499] 0.463 [0.499]Time discount rates: larger than 20% for three times 0.152 [0.360] 0.070 [0.256]
0.348 [0.477] 0.398 [0.490]
0.063 [0.243] 0.077 [0.268]
Time discount rates: one week< one year < ten years 0.113 [0.318] 0.144 [0.352]Time discount rates: no particular tendency 0.168 [0.375] 0.185 [0.389]Time discount rates: 0% for three times 0.023 [0.152] 0.016 [0.125]
0.133 [0.340] 0.109 [0.312]
Household debts (unit: 10,000 yen) 462.109 [798.1] 611.224 [917.9]Financial assets of household (unit: 10,000 yen) 541.504 [792.4] 602.333 [782.9]Home ownership 0.340 [0.475] 0.398 [0.490]Place of residence: country, town, village 0.188 [0.391] 0.113 [0.316]Place of residence: city designated by ordinance 0.254 [0.436] 0.252 [0.434]
N 256 568
Time discount rates: the same for three times (except for the above)
(100-a person's lowest probability of rainfall in a weather forecast for which he or she would carry an umbrella) / 100
Impossible to satisfy the requirement of 25-year participation by the age of 60
Time discount rates: one week (larger than 20%) > one year > ten yearsTime discount rates: one week (20% or less) > one year > ten years
(I) National Pension group (II) Employee group
Source: Estimation from Survey on Attitudes about Pensions (2005) by the authors
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Source: Estimation from the Survey on Attitudes about Pensions (2005) by the authors
Figure 2 Subjective expected lifespans and non-payment of National Pension contributions (=1)
In addition, in the comparison between those who have paid insurance premiums and those not in the
National Pension group, it is apparent that the percent of those who expect their lifespans to be at least five years shorter than the average expected lifespan is larger by 10 points in the group of those who did not contribute to the National Pension plan than those who paid such contributions. If their subjective expected longevity coincided with their actual longevity, there would be no problems. However, in case of National Pension non-contributors who subjectively expect to coincide with their longevity, with a downward bias from the actual longevity, they would have to live without pensions or with low pension benefits for a long time in their old age.
For hyperbolic time discounting as a proxy indicator of defective information processing, this has been categorized into seven types in Figure 3, where the difference between those who have made contributions to the National Pension (Contributors) and those who have not (Non-contributors), is observed. In the comparison between the Contributors and the Non-contributors, it is recognized that: 1) those with time discount rates of at least 20% for all the times of one week, one year and ten years; and 2) those with higher time preference rates for the near future rather than the distant future, i.e., a hyperbolic preference, account for higher proportions of the Non-contributor group than in the Contributor group.
To sum up, there are differences between Contributors and Non-contributors in terms of their subjective lifespans and their hyperbolic time discount rates, as seen from cross-tabulations. In other words, it appears that participation in insurance systems involves both the issue of a lack of long-term information and defective information processing.
0 10 20 30 40 50 60 70 80 90
100
20-29 30-39 40-49 50-59 contributors non- contributors
Will live at least 5 years longer
Will live less than 5 years longer
Will live an average expected lifespan
Will live less than 5 years shorter
Will live at least 5 years shorter
All samples (by age groups)
National Pension group
%
Evasion of National Pension Contributions and Hyperbolic Time Discounting
41
Source: Estimation from Survey on Attitudes about Pensions (2005) by the authors
Figure 3 Time discount rates and non-payment of National Pension contributions
(2) Probit analysis of non-contribution to the National Pension System and voluntary non-participation in public pension systems
The results of a Probit analysis, with personal attributes controlled, on what effects those variables have on non-contribution to the National Pension or voluntary non-participation in public pensions in an assumed situation, are shown in Table 3.
The attributes used as bases for analysis are male, employed, junior-high-school graduate, and the same time discount rate for three points in time (except for at least 20% for three points in time).
Let us consider the actual payment behavior of the National Pension group. The first column in Table 3 shows the results. Table 3 does not show coefficients, but rather marginal effects. For example, the group junior-college or college-of-technology graduate shows a value of -0.122 with a significance of 5%. This means that, if all other conditions are the same, junior-college or college-of-technology graduates show a 12% lower probability of non-payment of National Pension insurance premiums than junior-high school graduates do.
0 5 10 15 20 25 30 35 40 45
Larger than 20% for three times
One week (larger than 20%) > one year > ten years
One week (20% or less) > one year > ten years
One week < one year < ten years
No particular tendency
0% for three times
Same for three times (except for the above)
Contributors (n=213) Non-contributors (n=43)
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Table 3 Probit analysis of non-contribution to/voluntary non-participation in pension systems
dF/dx dF/dx dF/dxAge -0.006 [0.003] ** -0.001 [0.003] -0.009 [0.003] ***Woman -0.018 [0.049] 0.068 [0.060] -0.052 [0.056]Senior-high school graduate -0.122 [0.060] ** -0.287 [0.106] ** 0.032 [0.115]Junior-college or college-of-technology graduate -0.121 [0.040] ** -0.325 [0.171] ** 0.011 [0.121]University/college or graduate-school graduates -0.079 [0.046] -0.362 [0.161] ** -0.112 [0.122]With spouse 0.007 [0.049] 0.065 [0.062] 0.101 [0.058] *One's own income from a job (unit: 10,000 yen) 0.000 [0.000] 0.000 [0.000] *** 0.000 [0.000]Much lower than the average household income 0.006 [0.048] 0.059 [0.058] 0.087 [0.070]
0.425 [0.194] *** 0.108 [0.106] -0.100 [0.141]
Category III insured 0.001 [0.081]Unemployed 0.048 [0.063] 0.081 [0.067] 0.016 [0.082]Gap from the average expected life span (years) 0.000 [0.002] -0.007 [0.003] ** -0.004 [0.003]
0.026 [0.104] 0.144 [0.152] 0.003 [0.115]
No stock investment 0.011 [0.043] -0.002 [0.058] -0.027 [0.046]Time discount rates: larger than 20% for three times 0.194 [0.116] ** 0.195 [0.061] ** 0.010 [0.101]One week (larger the 20%) > one year > ten years 0.157 [0.084] ** 0.149 [0.076] * 0.067 [0.069]One week (20% or less) > one year > ten years -0.011 [0.120] 0.066 [0.098] -0.113 [0.100]One week < one year < ten years -0.034 [0.087] 0.125 [0.076] 0.013 [0.080]Time discount rates: no particular tendency 0.141 [0.112] 0.147 [0.067] * 0.141 [0.073] *Debts of household (unit: 10,000 yen) 0.000 [0.000] 0.000 [0.000] ** 0.000 [0.000] **Financial assets of household (unit: 10,000 yen) 0.000 [0.000] 0.000 [0.000] 0.000 [0.000]Owning a house -0.042 [0.052] -0.228 [0.078] *** -0.060 [0.060]Place of residence: country, town, village -0.038 [0.047] 0.004 [0.074] -0.108 [0.072]Place of residence: city designated by ordinance 0.123 [0.064] ** 0.004 [0.067] 0.013 [0.051] Log Likelihood -96.235 -125.300 -347.350 Pseudo R 2 0.170 0.155 0.064 N 256 256 568(Ratio of explained variable = 1(%)) 17% 73% 59%
[Std. Dev.] [Std. Dev.] [Std. Dev.]
Note: ***, ** and * indicate significances of 1%, 5% and 10% respectively. The reference groups are “male”, “having a job”, “having aspouse”, and “owning no house”. Dummy variables for education levels are based on “junior-high school graduate”; and those for timediscount rates on “the same time discount rate for three points in time” except for at least 20% for all three points in time. Students areexcluded from the analysis because they can apply for a special exemption rule.
Impossible to satisfy the requirement of 25-year participation by the age of 60
(100 - a person's lowest probability of rainfall in a weather forecast for which he or she would carry an umbrella)/100
(I)National Pension group (I)National Pension group (II)Employees group
Analysis ofnon-contribution toNational Pension
Analysis of voluntarynon-particiaption inNational Pension
Analysis of voluntarynon-participation in
public pension
Source: Estimation from the Survey on Attitudes about Pensions (2005) by the authors
Evasion of National Pension Contributions and Hyperbolic Time Discounting
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In the estimate’s results, significant variables are summarized as follows: (i) As age increases, the probability of non-payment of National Pension contributions becomes lower. This was
confirmed on the basis of the aggregated data published by the Social Insurance Agency (Maruyama and Komamura (2005)). On the other hand, in the National Pension group, age does not affect behavior if participation is on a voluntary basis. The reason why the actual payment of contributions is different from the results on the assumption of voluntary participation may be an effect of the requirement of 25-year participation. The estimate’s results show that the awareness of the impossibility of satisfying the requirement of 25-year participation by the age of 60 increases the probability of non-payment in the National Pension group by 43%. On the other hand, the requirement of 25-year participation may promote the payment of insurance premiums for those under 35 years of age. This can also be educed from the fact that aging has a negative effect on payment behavior. There is, therefore, some doubt as to whether it is preferable that the requirement of 25-year participation be abolished, as asserted by Suzuki and Zhou (2001, 2005), and Abe (2001). However, to ascertain that the requirement of 25-year participation has an absolute effect of inducing the generation under the age of 35 years to make contributions to the National Pension, it is necessary to analyze past contribution records directly (i.e., panel data), not just the state of contributions at one time point (i.e., cross-section data). This is a subject for future studies.
(ii) Those with higher time discount rates, of at least 20%, show a higher probability of non-payment and they would be more likely to be non-participants in the National Pension group if participation is on a voluntary basis. This is because they value consumption at present much higher than that in the future. It might be rational in that sense.
(iii) A preference on hyperbolic time discounting by which people value consumption at nearer points in time higher would increase the probability of non-contribution to the National Pension by 19%. A preference with high hyperbolic discounting would increase the rate of voluntary non-participation in the National Pension group.
(iv) A one-year extension in the subjective expected lifespan would result in a 1% drop in the probability of voluntary non-participation in the National Pension group. This suggests that, if the subjective expected lifespan corresponded to the objective expected lifespan, there would be an adverse selection problem.
(v) In the Employee group, the above-mentioned variables have little significant effects on the probability of voluntary non-participation in public pension systems, except for age. That may be because: 1) insurance premiums and benefits in employees’ pension systems are proportional to their wages, different from the National Pension with flat-rate insurance premiums and flat-rate benefits, and therefore, respondents might provide their responses on the basis of premiums and benefits proportional to their wages on the assumption of voluntary participation, and/or 2) those in the Employee group might be psychologically more dependent upon a public pension if it effectively permits consumption smoothing relative to the National Pension. Thus, it may be affected by unobserved factors.
5. Conclusion This paper analyzed the effects of time discount rates on contribution payments and participation in pension
systems. As a consequence, it is recognized that people with excessively high time discount rates or hyperbolic time discount rates have less incentive to pay contributions and join pension systems. As in other studies on hyperbolic discounting, this study also suggests that persons are generally vulnerable to short-term temptation, and are not good at making rational plans on a long-term basis, and that they might regret not having paid pension contributions or not having joined pension systems, as in the case of health, debts, or multiple debts.
Economics has so far explained that the reason for the existence of public pension systems is adverse selection, i.e., market failure. However, there may be cases of non-payment and non-participation because of hyperbolic time discounting, and then, it may be possible to justify the government’s forcible participation in pension systems on a paternalistic basis. This enforcement would supplement the limitation of an individual’s capacity for planning long-term savings/consumption. This implies no permission for easy withdrawal from defined contribution pension plans of lump-sum money if such pension plans are used as a substitute for public pensions, with matching
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contributions or preferential tax treatment expanded, when the level of benefits of the public pensions diminishes in the future. In other words, it would be necessary to restrict the right to withdraw from, or terminate a contract with, defined contribution pension plans. In view of the foregoing, it is justifiable to expand compulsory participation for atypical workers to be covered by Employees’ Pension Insurance in which compulsory participation can be more effectively implemented, in order to prevent non-payment of pension contributions by atypical workers. Even in the current system, some atypical workers can be covered by Employees’ Pension Insurance, but do not join in many instances. The first priority is to ensure that Employees’ Pension Insurance covers all those deemed to be under its coverage and it is necessary to ensure the strict implementation of such systems and collection of contributions in the reforms of the Social Insurance Agency, currently underway. The responsibility for monitoring this should be shared by the Board of Audit of Japan.
In addition, if voters are aware of the above-mentioned time preference, they may spontaneously support such policies with a view to committing themselves to pension systems so that they will not experience regrets in the future.
Besides the rationales for compulsory participation, another implication is whether to change the current 25-year participation and contribution requirement for qualification for benefits. This requirement has the effect of encouraging and discouraging the payment of pension contributions. Although the basis for the number of years itself is not very legitimate, the rule of the qualification period, i.e., by which a person receives no pension benefits at all unless he or she pays pension insurance premiums for a total of 25 years, including periods of being exempted from such premiums, may induce people to commit themselves more to pension systems as they grow older: 1) because they will receive no pension benefits at all if they do not pay premiums fully in the period after their mid-thirties at the latest; and 2) because, even if they pay some premiums, they cannot receive any pension benefits without a total of 25 years of contributions, including periods of exemption, nor can they receive a refund of paid insurance premiums. The rule, however, has the effect of discouraging people completely against paying premiums when they are aware that they no longer have a chance of satisfying the requirement of the period for qualification. There should be a more detailed consideration of the most appropriate qualification period, based on the optimized combination of people’s commitment and the flexibility of the system.
The issue of statutory limitation on payments should also be reconsidered. A person with a hyperbolic time preference is disposed to feeling regret for what he or she did, so such a person may wish to pay contributions after two years of the statutory limitation has expired13). Would it be better to extend the statutory limitation period? This would give rise to another problem. In some extreme cases, the most rational behavior is for a person to pay premiums after he or she has made sure that an insured accident has occurred. The insurance system would then collapse14). If the statutory limitation period is extended, it may be suggested that an additional cumulative insurance premium should be charged punitively.
This analysis of hyperbolic time discounting does not measure direct discounting, but simply adopts an explanatory variable of whether preference changes according to temporal distances. In behavioral economics, studies on hyperbolic discount rates by more precise methods have been developed, and thus, analyzing the non-payment of pension contributions by such study methods will be a future issue.
13) For the case of exemption or some specific payment, the statutory limitation is ten years, but interest is added to insurance premiums. The government has set a time-limited system for voluntary participation for people at the age of 60 or older, so that they can satisfy the required participation period for qualification for benefits. Actually, the time limit for that system was extended each time during pension system reforms. At this point, generations of 40 years of age or older (for women) are now allowed to join the pension system voluntarily until they reach 70 years old. 14) For example, in an extreme case, one would pay an amount of insurance premiums for 40 years in a lump sum when the person actually reaches age of 65.
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