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| Population Ageing, Pension Fund Gap Compensation and Economic Growth |
| LV Youji, JING Peng, ZHENG Wei
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School of Economics, Peking University;
School of Insurance, Southwestern University of Finance and Economics |
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Abstract With the continuous deepening of the population ageing in China in recent years, the shortage of the Employees' Basic Pension Fund has become increasingly severe and the downward pressure on economic growth has become more significant. The “system concept” put forward by the fifth plenary session of the 19th Central Committee of the Communist Party of China calls for the strengthen of overall planning.As stable and rapid economic growth is essential for pension system's sustainable operation, it is important to discuss about the pension fund gap issue under the framework of economic growth.
This paper constructs an overlapping generations model that includes fiscal expenditure and public debt to examine the impact of population ageing on economic growth, and compares the methods of pension fund gap compensation in promoting economic growth. Our analyses reveal that: (i) if fiscal subsidies are used to compensate for the pension fund gap, both the raised survival probability and the declined fertility will increase economic growth; (ii) if public debts or a combination of fiscal subsidies and public debts are used to compensate for the pension fund gap, the above conclusion holds when the output elasticity of human capital is small, but the effect of the raised survival probability on economic growth follows an inverted U-shape pattern and the effect of the declined fertility on economic growth is positive when the elasticity is large; (iii) the way to compensate for the pension fund gap is an essential institutional factor for economic growth.
This paper has three main contributions. First, in terms of research ideas, this paper uses the pension fund gap as the breakthrough point to achieve an organic combination of population ageing, pension fund gap compensation methods, and economic growth, and clarifies the influencing mechanism of population ageing and pension fund gap compensation methods on economic growth. Second, in terms of model construction, this paper comprehensively considers the substitution effect of the compensation for pension fund gap on productive public expenditures and private material capital, and discusses several core issues of the overlapping generations model, such as the stability, dynamic effectiveness, and debt sustainability of the economic equilibrium. Third, in terms of research conclusions, this paper depicts the evolution characteristics of population ageing and economic growth under different pension fund gap compensation methods, and puts forward methods that are most conducive to promoting economic growth under different conditions.
Based on the above conclusions, this paper draws three policy implications. First, at the conceptual level, it should be recognized that population ageing is an issue with both challenges and opportunities, which needs to be addressed with a positive attitude. Second, at the institutional level, the institutional exploration and policy reserve of pension fund gap compensation methods should be done well under the guidance of the “system concept” and in combination with the specific national conditions. Considering that the leading force of China's economic growth is still the material capital, and the output elasticity of the human capital is relatively small, exploring ways to compensate for the pension fund gap, including issuing public debts, will better optimize the long-term development path of the economy and society, and realize a good interaction between the pension system and economic growth. Third, at the technical level, the combination of policy tools to compensate for the pension fund gap should be determined dynamically based on quantification to improve the efficiency of national governance. In particular, the government should adopt more active debt management policies when issuing public debts to avoid the decline in economic stability caused by the expansion of debt scale, so as to achieve steady and rapid economic growth.
This paper constructs a theoretical analysis framework of the relationship between population ageing, pension fund gap compensation methods, and economic growth. Future research can be expanded from at least two aspects. First, considering that children's support is still an essential part of old-age support in China, the mechanism of “raising children for old-age support” can be introduced in future studies to better depict the motivation of individuals to invest in human capital. Second, the expansion of the debt scale weakens economic stability, which puts forward higher requirements for the debt management ability of the government. How to regulate the debt scale to achieve a smooth transition of the economy between different equilibriums is a key issue to be solved urgently.
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Received: 19 May 2020
Published: 02 February 2021
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