Sharing High Growth across Generations: Pensions and Demographic Transition in China
Kjetil Storesletten, Yikai Wang, Fabrizio Zilibotti and Zheng Song
Photo: American Economic Association
American Economic Journal: Macroeconomics 2015 7 (2) p.p. 1-39.
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.