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

53 Pages Posted: 2 Oct 2012

See all articles by Zheng Michael Song

Zheng Michael Song

University of Chicago

Kjetil Storesletten

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Yikai Wang

University of Zurich

Fabrizio Zilibotti

Yale University; Centre for Economic Policy Research (CEPR)

Date Written: September 2012

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.

Keywords: China, Credit market imperfections, Demographic transition, Economic growth, Fully funded system, Inequality, Intergenerational redistribution, Labor supply, Migration, Pensions, Poverty

JEL Classification: E21, E24, G23, H55, J11, O43, R23

Suggested Citation

Song, Zheng Michael and Storesletten, Kjetil and Wang, Yikai and Zilibotti, Fabrizio, Sharing High Growth Across Generations: Pensions and Demographic Transition in China (September 2012). CEPR Discussion Paper No. DP9156, Available at SSRN: https://ssrn.com/abstract=2155526

Zheng Michael Song (Contact Author)

University of Chicago ( email )

Kjetil Storesletten

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

Yikai Wang

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Fabrizio Zilibotti

Yale University ( email )

New Haven, CT 06520
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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