Sharing High Growth across Generations: Pensions and Demographic Transition in China

Kjetil Storesletten, Yikai Wang, Fabrizio Zilibotti and Zheng Song

American Economic Journal: Macroeconomics

Photo: American Economic Association

Published in:

American Economic Journal: Macroeconomics 2015 7 (2) p.p. 1-39.

DOI: 10.1257/mac.20130322

Abstract:

We analyze intergenerational redistribution in emerging economies with the aid of an overlapping generations model with endogenous labor supply. Growth is initially high but declines over time. A version of the model calibrated to China is used to analyze the welfare effects of alternative pension reforms. Although a reform of the current system is necessary to achieve financial sustainability, 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.

 

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Published July 29, 2015 10:37 AM - Last modified Sep. 23, 2015 1:35 PM