DP9156 Sharing High Growth Across Generations: Pensions and Demographic Transition in China

Author(s): Zheng Michael Song, Kjetil Storesletten, Yikai Wang, Fabrizio Zilibotti
Publication Date: September 2012
Keyword(s): China, Credit market imperfections, Demographic transition, Economic growth, Fully funded system, Inequality, Intergenerational redistribution, Labor supply, Migration, Pensions, Poverty
JEL(s): E21, E24, G23, H55, J11, O43, R23
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9156

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.