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Sharing High Growth Across Generations: Pensions and Demographic Transition in China

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  • Song, Zheng Michael
  • Storesletten, Kjetil
  • Wang, Yikai
  • Zilibotti, Fabrizio

Abstract

Intergenerational inequality and old-age poverty are salient issues in contemporary China. China's aging population threatens the fiscal sustainability of its pension system, a key vehicle for intergenerational redistribution. We analyze the positive and normative effects of alternative pension reforms, using a dynamic general equilibrium model that incorporates population dynamics and productivity growth. Although a reform is necessary, delaying its implementation implies large welfare gains for the (poorer) current generations, imposing only small costs on (richer) future generations. In contrast, a fully funded reform harms current generations, with small gains to future generations. High wage growth is key for these results.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9156.

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Date of creation: Sep 2012
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Handle: RePEc:cpr:ceprdp:9156

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Keywords: China; Credit market imperfections; Demographic transition; Economic growth; Fully funded system; Inequality; Intergenerational redistribution; Labor supply; Migration; Pensions; Poverty;

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  1. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  2. Zhang, Junsen & Zhao, Yaohui & Park, Albert & Song, Xiaoqing, 2005. "Economic returns to schooling in urban China, 1988 to 2001," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 730-752, December.
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  4. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303, October.
  5. Chang, Tai Hsieh & Peter, J- Klenow, 2007. "Misallocation and manufacturing TFP in China and India," MPRA Paper 35084, University Library of Munich, Germany, revised 15 Jun 2007.
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  7. Chamon, Marcos & Liu, Kai & Prasad, Eswar, 2010. "Income Uncertainty and Household Savings in China," IZA Discussion Papers 5331, Institute for the Study of Labor (IZA).
  8. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  9. Feldstein, Martin, 1999. "Social security pension reform in China," China Economic Review, Elsevier, vol. 10(2), pages 99-107.
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Cited by:
  1. Steef Baeten & Tom Van Ourti & Eddy Van Doorslaer, 2012. "Rising Inequalities in Income and Health in China: Who is left behind?," Tinbergen Institute Discussion Papers 12-091/V, Tinbergen Institute.
  2. Ge, Suqin & Yang, Dennis T. & Zhang, Junsen, 2012. "Population Policies, Demographic Structural Changes, and the Chinese Household Saving Puzzle," IZA Discussion Papers 7026, Institute for the Study of Labor (IZA).

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