Fertility Policies and Social Security Reforms in China

Abstract

This paper analyzes the impact of relaxing fertility controls and expanding social security in China. We develop an overlapping generations model in which fertility decisions and capital accumulation are endogenously determined in the presence of social security. In our model, children are an alternative savings technology-as they transfer resources to their retired parents. Important feedback links arise between fertility and social security variables: an expansion of social security benefits reduces fertility-partially offsetting the effects of relaxing the one-child policy. The feedback loop between social security variables and fertility suggests that abandoning fertility restrictions may not be as effective in helping to finance China's intended pension reform, especially if children are an important source of old-age support. The sustainability of the pension system is particularly at risk in the event of a growth slowdown. The objective of pension reforms may also be incongruent with other reforms, such as financial liberalization and financial integration.

Sharing High Growth across Generations: Pensions and Demographic Transition in China

“…However, this would not alter the desire to use the pension system to achieve intergenerational redistribution in favor of the earlier generations. Second, we do not consider the e¤ects of pension reforms on future fertility (see Courdacier et al 2013). Finally, we abstract from the crowding out e¤ect of public pensions on within-family old-age care.…”

Families in Macroeconomics

“…56 The mechanism that lower fertility decreases utility is analyzed in Cordoba (2015), who finds that, during the 1970-2005 period, world growth in wellbeing was lower than the growth rate in per capita consumption precisely because fertility fell so dramatically during that period. Coeurdacier, Guibaud, and Jin (2014) focus on the interaction between fertility policies and social security reform. 57 Since an expansion of social security lowers the incentives to have children (and thereby lowers the number of contributors to the system), the relaxation of the one child policy is likely to have smaller effects than typically anticipated.…”

A three-stage DEA-based efficiency evaluation of social security expenditure in China

“…Zhang et al(2019) used dynamic panel data from 2007 to 2016 and found social security is favorable for sustained economic growth of China [6]. Chinese scholars have also put attention to the utility of social security system in long-term economy growth, pension reform and fertility policy [7][8][9].…”