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Population Growth Rate, Life Expectancy and Pension Program Improvement in China

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  • Yang Zaigui

    (Central University of Finance and Economics, China)

Abstract

Applying an overlapping-generations model with lifetime uncertainty, we examine in this paper China’s partially funded public pension system. The findings show that the individual contribution rate does not affect the capital-labor ratio but the firm contribution rate does. The optimal firm contribution rate depends on the capital share of income, social discount factor, survival probability, and population growth rate. The simulation results indicate that the optimal firm contribution rate rises with China’s life expectancy but, surprisingly, falls with the population growth rate. We demonstrate that the optimal firm contribution rate should be cut when the effect of falling population growth rate is greater than that of rising life expectancy and that the rate is much more sensitive to the population growth rate than to life expectancy. This paper also solves the optimal interval to cope with China’s population aging peak in the 2030s.

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Article provided by De Gruyter in its journal Asia-Pacific Journal of Risk and Insurance.

Volume (Year): 2 (2008)
Issue (Month): 2 (March)
Pages: 1-13

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Handle: RePEc:bpj:apjrin:v:2:y:2008:i:2:n:2

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  1. Rowena A. Pecchenino & Patricia S. Pollard, 2000. "Dependent children and aged parents: funding education and social security in an aging economy," Working Papers 1995-001, Federal Reserve Bank of St. Louis.
  2. Luisa Fuster, 2000. "Capital Accumulation in an Economy with Dynasties and Uncertain Lifetimes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 650-674, October.
  3. E. Sheshinski & Y. Wiess, 1978. "Uncertainty and Optimal Social Security Systems," Working papers 225, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Kelvin R. Utendorf & Rowena A. Pecchenino, 1999. "Social security, social welfare and the aging population," Journal of Population Economics, Springer, vol. 12(4), pages 607-623.
  5. Zhang, Junsen & Zhang, Jie & Lee, Ronald, 2001. "Mortality decline and long-run economic growth," Journal of Public Economics, Elsevier, vol. 80(3), pages 485-507, June.
  6. Karni, Edi & Zilcha, Itzhak, 1989. "Aggregate and distributional effects of fair social security," Journal of Public Economics, Elsevier, vol. 40(1), pages 37-56, October.
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