How Inclusive Is Abenomics?; by Chie Aoyagi, Giovanni Ganelli, and Kentaro Murayama; imf working Paper No. 15/54; March 1, 2015

 8 

Notably, inequality in Japan has been above the G7 average and even its pace of increase has 

exceeded that of the G7 average in most years (text chart). The latest figure is about 0.33, 

slightly above the G7 average.  

Looking at both market and disposable income Gini, and further disaggregating these 

measures between working-age and elderly population, gives important insights into various 

aspects of inequality. First, fiscal redistribution is effective in reducing inequality for both the 

elderly and the working-age population, as seen in the gaps between the respective market 

and disposable income Gini coefficients. At the same time, this reduction of inequality 

through redistribution is very effective for the elderly, but less so for the working-age 

population (text charts).  

It is evident that fiscal redistribution significantly reduces income inequality for the elderly 

population. The Gini drops from close 

0.7 to close to 0.3 in most recent years 

as a result of redistribution, with the 

disposable income Gini even showing a 

slight downward trend.  On the contrary, 

inequality in disposable income for the 

working population – that is, mostly the 

wage inequality – shows a high 

correlation with market inequality. A 

simple bilateral regression suggests that, 

for the working-age population, each 

point increase in the market income Gini 

translates into a 0.4 point increase in the 

disposable income Gini.

 2

  

This suggests that for working 

households variations in market income 

inequality are highly associated with 

variations in disposable income 

inequality, although fiscal redistribution 

brings down the level of inequality to 

some extent. In other words, the 

dynamics of market income inequality 

for the working-age populations 

correspond to the dynamics of 

disposable income inequality changes, which have a direct impact on their living standards. 

                                                 

2

 The goodness-of-fit is about 0.76, and the linear correlation coefficient about 0.87. Both indicate significance 

of the correlation between the two measures of income inequality. 

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Gini (at disposable income, post taxes and transfers)

Gini before taxes and transfers

Gini before/after Tax and Redistribution

Elderly Households

Source: Ministry of Health, Labour and Welfare

0.2

0.25

0.3

0.35

0.4

0.45

Gini (at disposable income, post taxes and transfers)

Gini before taxes and transfers

Gini before/after Tax and Redistribution

Working-Age Households

Source: Ministry of Health, Labour and Welfare

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The large gap between the market income and disposable income inequality for the elderly is 

a sign of fiscal burden. A report by OECD (2011) warns that reliance on the tax and transfer 

system as a major mechanism of equalization of income is not an efficient or sustainable 

strategy. In the same vein, a more recent country brief (OECD 2014) points out that 

“population ageing will put pressure on public finances, which are already over-stretched.” 

Although a discussion of feasible fiscal policy options is beyond the scope of this paper, 

Japan might need to take into account the fiscal costs of redistribution, given its high and 

rising public debt, its increasing share of the elderly population, low fertility rate, and rising 

dependency ratio. In this regard, the Japanese government’s emphasis on structural reforms, 

including labor market reforms, seems appropriate.  

B.   Poverty 

Relative poverty rates – measured by the number of households whose income levels are 

below half of median income level – 

have been high and increasing in Japan 

since the 1980s. In 2009, this indicator 

marked around 16 percent, which is one 

of the highest in advanced countries. 

Compared to other G7 countries, Japan’s 

relative poverty rate is 4 percentage 

points highest than the average, and the 

second highest following the US (text 

chart). Japan’s rate is also the sixth 

highest amongst OECD country, and 

above the OECD average by 5 

percentage points. 

A noteworthy trend is the rapid increase in the child poverty rate, defined as the ratio of 

working households with children who 

are in relative poverty. Since 2006, the 

child poverty rate has risen faster than the 

full-sample poverty rate, and has 

surpassed the latter in 2012 (text chart). 

Further disaggregation of poor 

households with children by the number 

of adults reveals that the rate is largely 

driven by the significantly higher relative 

poverty rate of single-parent households 

(the majority being single-mother 

households), which remained above 50 

percent for 1985-2012.  

0

2

4

6

8

10

12

14

16

18

Relative Poverty Rates of G7Countries

(OECD comparison, %, year 2009)

Source: OECD

10

11

12

13

14

15

16

17

Relative Poverty (%)

Child Poverty (%)

Relative Poverty Rates by Household Type

Source: Ministry of Health, Labour and Welfare (2013)

(% of all households)

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