The Impact of China's Demographic Transition on Economic Growth and Income Distribution: CGE Modeling with Top-Down Micro-Simulation

Demographic transition due to population aging is an emerging issue throughout the developing world, and especially in China, which has undergone demographic transition more rapidly than most industrial economies. This paper quantifies the economic and distributional effects in the context of demographic transition using the integrated recursive dynamic computable general equilibrium (CGE) model with top-down behavioral micro-simulation. The results show that the population aging slow down China’s economy growth rate due to the exhausted of demographic dividend with high cost of labor force. The consequences from the poverty and inequality index indicate that population aging has a negative impact to the reduction of poverty while it is positive as refers to the equality during the process of demographic transition. The average age within a household has a noticeable contribution to total inequality. These findings suggest that measures for stimulating the second demographic dividend should be carried out to promote the economic growth as well as the reduction of poverty. The inequality within the same household groups while with different household age should be put more emphasize on. What’s more, the social pension system should be improved, especially in rural China