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

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Listed author(s):
  • 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
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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Find related papers by JEL classification:
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
  • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
  • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
  • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
  • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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  1. Greg Kaplan & Sam Schulhofer-Wohl, 2012. "Understanding the long-run decline in interstate migration," Working Papers 697, Federal Reserve Bank of Minneapolis.
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  8. Chamon, Marcos & Liu, Kai & Prasad, Eswar, 2013. "Income uncertainty and household savings in China," Journal of Development Economics, Elsevier, vol. 105(C), pages 164-177.
  9. 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.
  10. 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.
  11. Felix Salditt & Peter Whiteford & Willem Adema, 2007. "Pension Reform in China: Progress and Prospects," OECD Social, Employment and Migration Working Papers 53, OECD Publishing.
  12. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  13. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303.
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