Consumption- and productivity-adjusted dependency ratio with household structure heterogeneity in China

Using the 2011 Chinese Household Finance Survey data, with a regression model, we construct a new dependency ratio measure by taking into account the consumption needs of the young and elderly people, and the productivity of middle-aged people. We find that (i) the consumption- and productivity-adjusted dependency ratio are consistently lower than the one that is traditionally defined; (ii) the differences between traditional dependency ratio and the consumption- and productivity-adjusted dependency ratio grow larger in more distant future; and (iii) household composition significantly affect household consumption and medical expenditures. The relatively younger elderly living with their offspring reduces the consumption of the young members. The elderly living alone shows higher consumption and medical expenditures compared to their counterparts who live with their offspring. Contrary to previous findings, the medical cost does not increase with age, but it exhibits an inverted U-shape relationship with age. The age group between 56 and 65 experiences sharpest increases in medical cost in China. We also simulate the impacts of smaller households, urbanization, and economic growth on consumption for China.