Sharing High Growth across Generations: Pensions and Demographic Transition in China
UBS Center Working Paper Series, Working Paper No. 1, November 2012
52 Pages Posted: 6 Jun 2013
Date Written: November 1, 2012
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, Rural-urban reallocation, Total fertility rate, Wage growth
JEL Classification: E21, E24, G23, H55, J11, J13, O43, R23
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