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Study on the Distributional Effects of Public Pension System Reform in China

Social security is one of the modes for government to realize national income distribution while pension system is the main concern of social security. As soon as the establishment of pension system, the distribution mechanism embodied by t
Submitted On: 03-26-2011 | Views:	Article Tools:

Social security is one of the modes for government to realize national income distribution while pension system is the main concern of social security. As soon as the establishment of pension system, the distribution mechanism embodied by this system becomes the guarantee for senior citizens' basic standard living. This dissertation intends to provide comprehensive analysis of the relationship between pension and distributional effect.This dissertation is based on the theory and literature review of the distributional effects of public pension. On one hand, the author takes a research on the existing reason of distribution effect of pension system. From the macro perspective, we have a research on the distributional function of public pension with a discussion about the functional influence on fairness and efficiency. This dissertation divides public pension related groups by age and incomes, concluding different groups enjoy preference from individual's utility maximization. Comparing to China's situation, the reason of the distributional effects of pay-as-you-go public pension still exists. However, the alternate relationship of fairness and efficiency makes a challenge to the run of system. And with the deepening degree of ageing population, pay-as-you-go public pension will expose to fierce challenges. Under this trend, the coordination of fairness and efficiency relies on the improvement of labor productivity and the increase of the capital return.On the other hand, this paper conducts a comparative study on the distributional effect of pension system before and after the reform in China. First, the effects of different pension systems on income distribution are discussed theoretically. Second, based on the conditions of China's pension reform, we analyze intra-generational and inter-generational distribution effects using quantitative analysis as well as actuarial method. Finally, the result shows that compared with the old pension system, the new pension system significantly weaken the intra-generational distribution effect and may induce severe unfairness between generations.

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