This article represents the first step in filling a large gap in knowledge
concerning why Public Assistance (PA) use recently rose so fast
in Japan. Specifically, we try to address this problem not only by performing
a Blanchard and Quah decomposition on long-term monthly
time series data (1960:04-2006:10), but also by estimating prefecturelevel
longitudinal data.
Two interesting findings emerge from the time series analysis. The
first is that permanent shock imposes a continuously positive impact
on the PA rate and is the main driving factor behind the recent increase
in welfare use. The second finding is that the impact of temporary
shock will last for a long time. The rate of the use of welfare is quite
rigid because even if the PA rate rises due to temporary shocks, it takes
about 8 or 9 years for it to regain its normal level.
On the other hand, estimations of prefecture-level longitudinal data
indicate that the Financial Capability Index (FCI) of the local government2
and minimum wage both impose negative effects on the PA rate.
We also find that the rapid aging of Japan's population presents a permanent
shock in practice, which makes it the most prominent contribution
to surging welfare use.
The 1993 EITC expansion and low-skilled single mothers’ welfare use decision
