Working Paper: CEPR ID: DP9156
Authors: Zheng Michael Song; Kjetil Storesletten; Yikai Wang; Fabrizio Zilibotti
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 Codes: E21; E24; G23; H55; J11; O43; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current pension system rules (H55) | sustainability (Q01) |
| delaying pension reforms (H55) | welfare gains for current generations (D69) |
| fully funded reform (I28) | harm to current generations (F69) |
| pay-as-you-go system (H55) | generous pensions for early cohorts (H55) |
| pay-as-you-go system (H55) | punishment for those retiring after 2050 (J26) |
| extending pension system to rural workers (H55) | large welfare gains for the poorest segments (D69) |