Sharing high growth across generations : pensions and ... · Z. Song, K. Storesletten, Y. Wang, F. Zilibotti Sharing high growth across generations : pensions and demographic transition

Z. Song, K. Storesletten, Y. Wang, F. Zilibotti

Sharing high growth across generations : pensions and demographic transition in China CEPRA working paper 03/2012

10 15 20 25 30 35 40 45 50-2

0

2

4

6

8

10

12

14

16

Age

Emig

ratio

n R

ate

(Per

cent

)

Emigration Rates from Rural Areas by Age and Gender, as a Share of Each Cohort

Males

Females

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 21000

0.5

1

1.5

Time

Popu

latio

n Si

ze (B

illion

s)

Population Dynamics of China

Total

Urban

Rural

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 21000

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Time

Rat

io P

opul

atio

n 60

+ / P

opul

atio

n 18

-59

Urban

Rural

Projected Old-age Dependency Ratios

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100100

200

400

800

1600

Time

Labo

r Ear

ning

s (L

og S

cale

)

Labor Earnings Conditional on Human Capital

1960 1980 2000 2020 2040 2060 2080 21000.2

0.4

0.6

0.8

Time

Panel a: Replacement Rate by Year of Retirement

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 21100.040.060.08

0.10.120.14

Time

Tax revenue

Expenditures, Benchmark

Expenditures, Delayed Reform

Panel b: Tax Revenue and Pension Expenditures as Shares of Urban Earnings

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2110-3

-2.5

-2

-1.5

Time

Panel c: Government Debt as a Share of Urban Earnings

Benchmark

Delayed Reform

Welfare Gain (Equiv . Var iation) by Year of Retirement

Year of R etirement

Wel

fare

Gai

nω

(in

Perc

ent)

2000 2020 2040 2060 2080 2100-20

-10

0

10

20

30Delay ed Reform Until 2040

2000 2020 2040 2060 2080 2100-20

-10

0

10

20

30Delay ed Reform Until 2100

2000 2020 2040 2060 2080 2100-20

-10

0

10

20

30Fully Funded Reform

2000 2020 2040 2060 2080 2100-20

0

20

40

60

PAYGO Reform

2020 2030 2040 2050 2060 2070 2080 2090 2100

1

2

3

4

5

6

7

8

Period T of Reform Implementation

Wel

fare

Gai

nω

(in

Perc

ent) High Discount Rate

Low Discount Rate

Welfare Gains of Delaying the Reform (Utilitarian Planner)

1960 1980 2000 2020 2040 2060 2080 21000

0.2

0.4

0.6

0.8

Time

Panel a: Replacement Rate by Year of Retirement

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 21100

0.05

0.1

Time

Tax revenue

Expenditures, Benchmark

Expenditures, FF Reform

Panel b: Tax Revenue and Pension Expenditures as Shares of Urban Earnings

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2110-3

-2

-1

0

Time

Panel c: Government Debt as a Share of Urban Earnings

Benchmark

FF Reform

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 21100

0.5

1

1.5

Benchmark

PAYGO

Year

Panel a: Pension Payment / Labor Earnings by Year

1980 2000 2020 2040 2060 2080 21000

10

20

30

40

Benchmark

PAYGO

Year of Retirement

Panel b: Lifetime Pension / Average Labor Earnings in the Year of Retirement, by Cohort

Sensitiv ity Analysis: Welfare Gains by Cohorts Under Different Scenarios

T (Time of Retirement)

Con

sum

ptio

n Eq

uiva

lent

Gai

n/Lo

ss (i

n Pe

rcen

t)

2000 2050 2100-15

-10

-5

0

5

10

15

20

25

Delayed Until 2040

2000 2050 2100-15

-10

-5

0

5

10

15

20

25Low Wage Growth

Fully Funded

2000 2050 2100

-10

0

10

20

30

40

50

60

70

PAYGO

2000 2050 2100-15

-10

-5

0

5

10

15

20

25

Delayed until 2040

2000 2050 2100-15

-10

-5

0

5

10

15

20

25Low Fertility

Fully Funded

2000 2050 2100

0

20

40

60

80

PAYGO

2010 2020 2030 2040 2050 2060 2070 2080 2090 21000.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

Time

Annu

al G

rowt

h Ra

te

GDPpc and GDPpw growth

GDPpc

GDPpw

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

7500

15000

30000

60000

120000

Time

GDP

per

Cap

ita (L

og S

cale)

GDPpc: China and US

China

US

0 10 20 30 40 50 60 70 80 90 1000

5

10

15x 10 6

Age

Panel A: Female Population

0 10 20 30 40 50 60 70 80 90 1000

5

10

15x 10 6

Age

Panel B: Male Population

SimulationData

SimulationData

1930 1940 1950 1960 1970 1980 1990 2000 20102

3

4

5

6

7

8

9

10

11

12

Birth Year

Year

s of S

choo

ling

Years of Schooling by Cohort

1960 1980 2000 2020 2040 2060 2080 21000.2

0.4

0.6

0.8

Time

Panel a: Replacement Rate by Year of Retirement

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 21100.05

0.1

0.15

0.2

Time

Tax revenue Expenditures, Benchmark

Expenditures, Delayed Reform Until 2100

Panel b: Tax Revenue and Pension Expenditures as Shares of Urban Earnings

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2110

-2

0

2

Time

Panel c: Government Debt as a Share of Urban Earnings

Benchmark

Delayed Reform Until 2100

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100100

200

400

800

1600

3200

Time

Wag

e R

ate

(Log

Sca

le)

Wage Rate in Rural and Urban Sec tors

Rural

Urban

CEPRA WORKING PAPER

01/2012

V. Galasso, P. Profeta, When the state mirrors the family : the design of pension systems

02/2012

E. García-Morán, Z. Kuehn, With strings attached : grandparent-provided child care, fertility, and female labor market outcomes

03/2012

Z. Song, K. Storesletten, Y. Wang, F. Ziliotti, Sharing high growth across generations : pensions and demographic transition in China