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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  

Zheng Michael Song

Fudan University - School of Economics

Kjetil Storesletten

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Yikai Wang

University of Zurich

Fabrizio Zilibotti

University of Zurich; Centre for Economic Policy Research (CEPR)

Date Written: November 1, 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, Rural-urban reallocation, Total fertility rate, Wage growth

JEL Classification: E21, E24, G23, H55, J11, J13, 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 (November 1, 2012). UBS Center Working Paper Series, Working Paper No. 1, November 2012. Available at SSRN: https://ssrn.com/abstract=2262375 or http://dx.doi.org/10.2139/ssrn.2262375

Zheng Song (Contact Author)

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Kjetil Storesletten

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 2284 4009 (Phone)
+47 2285 5035 (Fax)

HOME PAGE: http://folk.uio.no/kjstore/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Yikai Wang

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Fabrizio Zilibotti

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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