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Does old-age security promote rural residents' consumption? A decomposition based on contribution and replacement rates

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  • Zhao, Weimin
  • Chen, Na

Abstract

Vulnerable groups have low income and face borrowing constraints. What is the effect of pension security on lifelong consumption? Since 2011, China has been piloting old-age security among rural residents, which provides opportunities to study this issue. We numerically simulate the impact of old-age security on rural residents' consumption based on the overlapping generations framework and empirically test the findings. The empirical results show that pension security increases per capita expenditure during the working and retirement periods by 2.04% and 0.91%, respectively. The current excessively high average payment rate (exceeding the numerical simulation threshold of 0.1) has a negative moderating effect on the two consumption periods. The replacement rate, which primarily exhibiting a wealth effect, positively moderates consumption in both periods. Our research has theoretical and practical implications for optimizing social security and promoting welfare among low-income groups.

Suggested Citation

  • Zhao, Weimin & Chen, Na, 2024. "Does old-age security promote rural residents' consumption? A decomposition based on contribution and replacement rates," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 817-830.
    • Handle: RePEc:eee:ecanpo:v:82:y:2024:i:c:p:817-830
    DOI: 10.1016/j.eap.2024.04.017
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    More about this item

    Keywords

    Pension security; Rural consumption; Overlapping generations model; Numerical simulation; Instrumental variable;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G2 - Financial Economics - - Financial Institutions and Services
    • H4 - Public Economics - - Publicly Provided Goods
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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