Urban public pension, replacement rates and population growth rate in China

This paper investigates the urban public pension in China, and examines the effects of the replacement rates and population growth rate on the capital-labour ratio, pension benefits, consumption and utility. Furthermore, it figures out the optimal replacement rate.

The paper indicates that the government has increased the pension benefits in recent years, and denoted to continue increasing. Hence, it is valuable to find out the criterion to determine the optimal replacement rate. Overall, the paper shows the following facts:

• raising the individual account benefit replacement rate only increases the individual account benefits
• raising the social pool benefit replacement rate induces the increase in the social pool benefits and retirement-period  consumption
• yet, it induces the decrease in the capital-labour ratio, individual account benefits, working-period consumption and utility
• the fall in the population growth rate leads to the increase in the capital-labour ratio, social pool benefits, individual account benefits, working-period consumption and utility
• however, it leads to the decrease in the retirement-period consumption
• the optimal social pool benefit replacement rate depends on the individual discount factor, social discount factor, capital share of income and population growth rate
• nevertheless, this optimal rate decreases in the case of fallen population growth rate
• indeed, it will do more good than harm to raise the individual account benefit replacement rate, reduce the social pool benefit replacement rate and strictly implement China’s population policy
  

Consequently, the paper concludes that in order to decrease the capital-labour ratio to restrain the over-fast growth of capital assets investment in China, it is necessary to raise the social pool benefit replacement rate or properly relax the population policy.