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A Study of the Impact of Population Aging on Fiscal Sustainability in China

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  • Qiongzhi Liu

    (School of Economics and Management, Wuhan University, Luojiashan Hill, Wuhan 430072, China)

  • Dapeng Zhao

    (School of Economics and Management, Wuhan University, Luojiashan Hill, Wuhan 430072, China)

Abstract

China has entered a deeply aging society, and the aging population poses a significant public risk to fiscal sustainability. In this regard, researchers have conducted a large number of studies, but the fiscal sustainability indicators used in the existing literature are not scientific enough, the sample data are too macro, and the heterogeneity analysis is not comprehensive enough. This paper innovatively constructs fiscal sustainability indicators based on data from 4 municipalities directly under the central government, 8 provincial capitals, and 88 prefecture-level cities in China from 2010–2019, and analyzes the impact of population aging on fiscal sustainability in eastern, central, western, and multi-level cities in China, using methods such as two-way fixed-effects models. The study finds that (1) fiscal sustainability is significantly hampered by population aging; that is, the more aging there is, the less fiscal sustainability there is. (2) The inhibitory effect of population aging on fiscal sustainability is greater in developed regions compared to backward regions. Compared to prefecture-level cities, provincial cities (including municipalities and provincial capitals) are much more negatively impacted by population aging on fiscal sustainability. (3) The paths through which population aging inhibits fiscal sustainability are healthcare expenditures and social security employment expenditures. The policy recommendations put forward in this paper are to raise the fertility rate, protect the fiscal expenditures of developed regions and provincial capitals to deal with population aging, and increase the effectiveness of the use of funds for medical and health expenditures and social security employment expenditures. The conclusions and policy recommendations drawn in this paper have a positive effect on China’s response to the fiscal sustainability problems caused by an aging population.

Suggested Citation

  • Qiongzhi Liu & Dapeng Zhao, 2023. "A Study of the Impact of Population Aging on Fiscal Sustainability in China," Sustainability, MDPI, vol. 15(6), pages 1-15, March.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:6:p:5409-:d:1100966
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    References listed on IDEAS

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    1. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
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    4. Marcos Carchano & Inmaculada Carrasco & Sebastián Castillo & M. Carmen García-Cortijo, 2021. "The Social Economy as a Factor of Economic Development and Resilience of Population in Rural Areas. A Study of Mediating Effects in Castilla-La Mancha (Spain)," Sustainability, MDPI, vol. 13(10), pages 1-19, May.
    5. Wang, Lijian & Béland, Daniel & Zhang, Sifeng, 2014. "Pension financing in China: Is there a looming crisis?," China Economic Review, Elsevier, vol. 30(C), pages 143-154.
    6. Yuanyuan Wu & Yuxiang Song & Tingting Yu, 2019. "Spatial Differences in China’s Population Aging and Influencing Factors: The Perspectives of Spatial Dependence and Spatial Heterogeneity," Sustainability, MDPI, vol. 11(21), pages 1-20, October.
    7. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Ricciardi, Anthony Michael & Xia, Jianhong(Cecilia) & Currie, Graham, 2015. "Exploring public transport equity between separate disadvantaged cohorts: a case study in Perth, Australia," Journal of Transport Geography, Elsevier, vol. 43(C), pages 111-122.
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    Cited by:

    1. Qiongzhi Liu & Xikai Zhang, 2023. "A Study on the Effects of Tax Reduction Policies on Fiscal Sustainability in China," Sustainability, MDPI, vol. 15(10), pages 1-20, May.

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