Abstract for: Fiscal Dynamics in Japan under Demographic Pressure

Japan faces a demographic transformation--a shrinking total population, a declining working-age share, and rapid elderly growth. These trends squeeze public finances from both sides--fewer people paying taxes and more people drawing on pensions and healthcare. Policy debates often focus on one fix at a time, such as raising taxes, reforming pensions, or boosting productivity. However, these levers interact with each other through feedback loops and time delays that remain insufficiently understood. We build and calibrate an integrated system dynamics model connecting cohort-based demographics, labor supply, productivity-driven economic output, and public finance finance. The model, implemented in Vensim for 1968–2050 and grounded in official Japanese statistics, identifies feedback loops linking demographic change to fiscal outcomes. We test three policy levers—productivity growth, fertility increase, and per-capita cost containment—introduced from 2025 in moderate and aggressive variants. The model has demonstrated its ability to track historical trends in total population, GDP, and debt. Policy experiments show that productivity improvements and per-person controls on pension and insurance costs offer the most effective near-term relief. In contrast, raising fertility actually worsens the fiscal picture in the medium term. A combined scenario pairing moderate productivity gains with moderate cost control nearly eliminates the deficit by 2050. These findings emphasize the importance of timing when evaluating demographic policy. Stabilizing finances within a practical timeframe requires levers that improve the budget directly, rather than those that work through slow demographic channels. The model acts as a transparent testing ground for designing time-aware fiscal policy packages in aging, high-debt economies. Future extensions could incorporate immigration, endogenous interest rate feedback, and cross-country comparisons among aging high-debt economies. Editing, proofreading