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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.

Suggested Citation

  • Song, Zheng Michael & Storesletten, Kjetil & Wang, Yikai & Zilibotti, Fabrizio, 2012. "Sharing High Growth Across Generations: Pensions and Demographic Transition in China," CEPR Discussion Papers 9156, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9156
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    More about this item

    Keywords

    China; Credit market imperfections; Demographic transition; Economic growth; Fully funded system; Inequality; Intergenerational redistribution; Labor supply; Migration; Pensions; Poverty;
    All these keywords.

    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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