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Population aging and China's social security reforms

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  • Li, Shiyu
  • Lin, Shuanglin

Abstract

China's population aging problem is more severe than other countries because of the one-child policy adopted in the early 1980s, and the current social security system is not sustainable. A two-sector overlapping generations model is developed to analyze China's social security reforms. It is shown that if the government does nothing to reform the system, maintaining the current replacement and contribution rates, social security debt will be explosive. Various reforms are considered, including adjusting the replacement rate while keeping the contribution rate constant, increasing the contribution rate while maintaining the current replacement rate, increasing the retirement age with the contribution rate being unchanged, increasing the retirement age with the replacement rate being unchanged, and switching to a fully-funded system by using government assets to pay the implicit social security debt. The effects of these reforms on capital accumulation, the output, and the welfare for each generation are simulated and compared.

Suggested Citation

  • Li, Shiyu & Lin, Shuanglin, 2016. "Population aging and China's social security reforms," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 65-95.
    • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:1:p:65-95
    DOI: 10.1016/j.jpolmod.2015.10.001
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    Cited by:

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    5. Taoyuan Wei & Qin Zhu & Solveig Glomsrød, 2018. "Ageing Impact on the Economy and Emissions in China: A Global Computable General Equilibrium Analysis," Energies, MDPI, vol. 11(4), pages 1-13, April.
    6. Li, Shiyu & Lin, Shuanglin, 2023. "Housing property tax, economic growth, and intergenerational welfare: The case of China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 233-251.
    7. Sabzalizad Honarvar , Sonia & Raghfar , Hossein & Mousavi , Mirhossein, 2017. "Macroeconomic and Welfare Effects of Parametric Pension Reform in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(4), pages 455-479, October.
    8. Yiping Xiao & Yan Song & Xiaodong Wu, 2018. "How Far Has China’s Urbanization Gone?," Sustainability, MDPI, vol. 10(8), pages 1-17, August.

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    More about this item

    Keywords

    Social security reforms; PAYG system; Funded system; Overlapping generations model; China;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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