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Discussion Paper Discussion Paper 146 (2017.12)

[No.146] Fiscal Costs of Newly Launched Income Contingent Loans in Japan- A Microsimulation Approach –

Masaaki kawagoe
   
Yukiko ITO
  Principal Economist
Masato takara
   

2017/12/12

<Abstract>

This study estimates the fiscal costs incurred by the income contingent loans launched in April 2017 using a microsimulation approach. The study identifies three factors to understand how costly the loan scheme is: discount rate, female working conditions, and income mobility. The largest costs include about 40% of the mean loan outstanding at the time of graduation that would not be repaid in present discount value terms. This amount may be reduced as the discount rate falls from 2%, as more married females continue working at higher wages, and as more income dynamics are introduced, such as changes in the percentiles of income distributions during individuals’ lives. The costs would be, on average, 20 percentage points higher than their fixed repayment counterparts.