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Lifetime Uncertainty and the Optimal Replacement Rate of urban Public Pension in China

Author

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  • Yang, Zaigui

Abstract

By considering lifetime uncertainty, this paper employs an OLG model within general equilibrium framework to analyze China’s urban public pension system. Using the condition for the steady-state of market economy to satisfy the social welfare maximization, we solve the optimal social pool benefit replacement rate. This optimal replacement rate depends on the population growth rate, survival probability in retirement period, capital share of income, individual discount rate and social discount rate. The simulations show that the optimal social pool benefit replacement rate rises with the life expectancy, whereas falls with the population growth rate. It should decrease when the life expectancy has risen and the population growth rate fallen because it is much more sensitive to the latter than the former.

Suggested Citation

  • Yang, Zaigui, 2008. "Lifetime Uncertainty and the Optimal Replacement Rate of urban Public Pension in China," MPRA Paper 18794, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18794
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    File URL: https://mpra.ub.uni-muenchen.de/18794/1/MPRA_paper_18794.pdf
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    References listed on IDEAS

    as
    1. Pecchenino, Rowena A. & Pollard, Patricia S., 2002. "Dependent children and aged parents: funding education and social security in an aging economy," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 145-169, June.
    2. Kelvin R. Utendorf & Rowena A. Pecchenino, 1999. "Social security, social welfare and the aging population," Journal of Population Economics, Springer;European Society for Population Economics, vol. 12(4), pages 607-623.
    3. Zhang, Junsen & Zhang, Jie & Lee, Ronald, 2001. "Mortality decline and long-run economic growth," Journal of Public Economics, Elsevier, vol. 80(3), pages 485-507, June.
    4. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, vol. 87(2), pages 233-251, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Lifetime Uncertainty; Replacement Rate; Public Pension;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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