Description: Implicit Pension Debt, Transition Cost, Options, and Impact of China's Pension Reform : A Computable General Equilibrium Analysis

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Implicit Pension Debt, Transition Cost, Options, and Impact of China's Pension Reform : A Computable General Equilibrium Analysis

The main problems with China's pension system--the pension burdens of state enterprises and the agency of the population--have deepened in recent years. Using a new computable general equilibrium model that differentiates between three types o...

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Main Authors:	Wang, Yan, Xu, Dianqing, Wang, Zhi, Zhai, Fan
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCOUNTING SYSTEM ADMINISTRATIVE COSTS ADMINISTRATIVE SYSTEM ALLOCATION OF RESOURCES AUTHORITY BASIC BENEFIT BASIC PENSION BENEFIT LEVEL BUDGET SURPLUS CENTRAL GOVERNMENT CENTRAL GOVERNMENTS COMPETITIVE BIDDING CONTRIBUTION RATE CONTRIBUTION RATES DEBT DECREE DECREES DEFICITS DEFINED BENEFITS DEFINED CONTRIBUTION PROVIDENT FUNDS DEFINED CONTRIBUTION SYSTEMS DEPENDENCY RATIO DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DISCOUNT RATES ECONOMIC GROWTH ECONOMIC REFORM ECONOMISTS EMPIRICAL EVIDENCE EMPLOYMENT ENTERPRISE OWNERSHIP ENTERPRISE REFORM EQUILIBRIUM EXPENDITURES FACE VALUE FINANCIAL SECTORS FINANCIAL SUSTAINABILITY FINANCIAL VIABILITY FISCAL FISCAL EXPENDITURE FISCAL POLICIES FISCAL RESOURCES FISCAL STABILITY FISCAL SUSTAINABILITY FOREIGN DEBT FUTURE PENSIONS GENERAL EQUILIBRIUM MODEL GOVERNMENT DEBT GOVERNMENT POLICY IMPORTS INCENTIVE PROBLEMS INCOME INCOME DISTRIBUTION INCOME INEQUALITY INDEXATION INDIVIDUAL ACCOUNTS INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL SECTOR INTERGENERATIONAL EQUITY INVENTORIES INVENTORY LABOR FORCE LABOR INPUTS LABOR MARKET LABOR SUPPLY LIFE EXPECTANCY LOCAL GOVERNMENT LOCAL GOVERNMENT FINANCE LOCAL GOVERNMENTS LOCAL TAX MARKET DISTORTIONS MARKET PRICES MINISTRY OF FINANCE MULTIPILLAR SYSTEMS MUNICIPALITIES MUNICIPALITY PAYROLL TAX PAYROLL TAXES PENSION COVERAGE PENSION DEBT PENSION FUND PENSION FUNDS PENSION INSURANCE PENSION LIABILITIES PENSION REFORM PENSION REFORMS PENSION RIGHTS PENSION SERVICES PENSION SYSTEM PENSION SYSTEM REFORM PENSION SYSTEMS PENSIONERS PENSIONS PERSONAL SAVINGS POLICY INSTRUMENTS POPULATION DYNAMICS POPULATION GROWTH POVERTY LINE PREFECTURE GOVERNMENTS PRESENT VALUE PRIVATIZATION PRODUCTIVITY PUBLIC ENTERPRISES PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC PILLAR PUBLIC POLICIES PUBLIC POLICY PUBLIC RESOURCES PUBLIC SECTOR REPLACEMENT RATE REPLACEMENT RATES RESOURCE ALLOCATION RETIREES RETIREMENT RETIREMENT AGE REVENUE SOURCES SAVINGS SOCIAL INSURANCE SOCIAL INSURANCE CONTRIBUTIONS SOCIAL INSURANCE FUNDS SOCIAL SECURITY SOCIAL SECURITY BENEFITS SOCIAL SECURITY REFORM SOCIAL SECURITY TAXES STATE ASSETS STATE BANKS STATE ENTERPRISE STATE ENTERPRISES STATE PLANNING STATE SECTOR STATE-OWNED ENTERPRISES TAX RATES TAX REVENUE TAXATION TRADE POLICIES UNEMPLOYMENT WAGES WELFARE EFFECTS
Online Access:	http://documents.worldbank.org/curated/en/2001/02/1003174/implicit-pension-debt-transition-cost-options-impact-chinas-pension-reform-computable-general-equilibrium-analysis http://hdl.handle.net/10986/19708

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Summary:	The main problems with China's pension system--the pension burdens of state enterprises and the agency of the population--have deepened in recent years. Using a new computable general equilibrium model that differentiates between three types of enterprise ownership and 22 groups in the labor force, the authors estimate the effects of pension reform in China, comparing various options for financing the transition cost. They examine the impact that various reform options would have on the system's sustainability, on overall economic growth, and on income distribution. The results are promising. The current pay-as-you-go system, with a notional individual account, remains unchanged in the first scenario examined. Simulations show this system to be unsustainable. Expanding coverage under this system would improve financial viability in the short run but weaken it in the long run. Other scenarios assume that the transition cost will be financed by various taxes and that a new, fully funded individual account will be established in 2001. The authors compare the impact of a corporate tax, a value-added tax, a personal income tax, and a consumption tax. They estimate the annual transition cost to be about 0.6 percent of Gross Domestic Product (GDP) between 2000 and 2010, declining to 0.3 percent by 2050. Using a personal income tax to finance the transition cost would best promote economic growth and reduce income inequality. Levying a social security tax and injecting fiscal resources to finance the transition costs would help make the reformed public pillar sustainable. To finance a benefit of 20 percent of the average wage, a contribution rate of only 10 percent-12.5 percent would be enough to balance the basic pension pillar. Gradually increasing the retirement age would further reduce the contribution rate.