Asset Privatization as Intergenerational Redistribution

Rapid economic growth creates large differences in lifetime incomes across generations. This paper examines the intergenerational redistribution generated by subsidized access to appreciating public assets in rapidly growing economies. We show that providing incumbent generations with subsidized access to these assets before future growth is fully capitalized into market values gives them an early claim on subsequent economic growth, thereby redistributing resources from future to incumbent generations. In the context of housing privatization, subsequent capital gains on privatized housing enable homeowners to trade up, further amplifying housing demand, house prices, and intergenerational redistribution. We evaluate the early ownership and capital gains channels of asset-based redistribution in a quantitative equilibrium model calibrated to China’s housing privatization. Relative to more standard pension-based redistribution, we show that asset-based redistribution delivers higher welfare for future cohorts while substantially reducing long-run fiscal burdens once economic growth unexpectedly slows.