Forecasting welfare caseloads: The case of the Japanese public assistance program

• I forecast welfare caseloads in Japan using several forecasting methods.
• The literature only examined the US cases without exploiting recent methodologies.
• VAR and forecast combination (FC) outperform in pseudo real-time forecasting.
• Simple average FC appears to outperform in real-time forecasting.
• FC predicts the caseloads surpass 1.7 million by 2016, a 20% increase from 2011.

Forecasting welfare caseloads has grown in importance in Japan because of their recent rapid increase. Given that the forecasting literature on welfare caseloads only focuses on US cases and utilizes limited classes of forecasting models, this study employs multiple alternative methods in order to forecast Japanese welfare caseloads and compare forecasting performances. In pseudo real-time forecasting, VAR and forecast combinations tend to outperform the other methods investigated. In real-time forecasting, however, a simple version of forecast combinations seems to perform better than the remaining models, predicting that welfare caseloads in Japan will surpass 1.7 million by the beginning of 2016, an approximately 20% increase in five years from the beginning of 2011.