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Working Longer in China: Implicit Tax or Subsidy?

Author

Listed:
  • Xu, Jing
  • Wang, Xinmei

Abstract

Using the conventional concept of implicit tax, we investigate pension incentives to retire for private sector employees in China. The social security pension consists of pay-as-you-go defined benefit (DB) and defined contribution (DC) systems. Based on Chinese official parameters and the revised OECD models, our studies conclude that the DB system discourages people from working more, but the DC system offers considerably greater incentives at the expense of financial sustainability. If the annuity factors in the DC scheme were linked to the probability of retirees’ mortality, then both constant incentives to work longer and financial sustainability could be achieved.

Suggested Citation

  • Xu, Jing & Wang, Xinmei, 2018. "Working Longer in China: Implicit Tax or Subsidy?," CIS Discussion paper series 675, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:cisdps:675
    as

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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29762/cis_dp675.pdf
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    References listed on IDEAS

    as
    1. Ogawa, Naohiro & 小川, 直宏 & オガワ, ナオヒロ & Takayama, Noriyuki & 高山, 憲之 & タカヤマ, ノリユキ, 2005. "Demography and Ageing," Discussion Paper 251, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    2. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, vol. 88(2), pages 158-163, May.
    3. Clark, Gordon L. & Munnell, Alicia H. & Orszag, J. Michael (ed.), 2006. "The Oxford Handbook of Pensions and Retirement Income," OUP Catalogue, Oxford University Press, number 9780199272464.
    4. Takashi Oshio & Akiko S. Oishi & Satoshi Shimizutani, 2018. "Social Security Programs and Elderly Employment in Japan," NBER Chapters, in: Social Security Programs and Retirement around the World: Reforms and Retirement Incentives, pages 271-296, National Bureau of Economic Research, Inc.
    5. Gijs Dekkers, 2007. "The financial implications of working longer: An Application of a Micro-Economic Model of Retirement in Belgium," International Journal of Microsimulation, International Microsimulation Association, vol. 1(1), pages 10-25.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    implicit tax; incentives; pension wealth; social security pension; working longer;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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