Research On The Efficiency Of Pension System Reform In China

After World War II, the social welfare system of"from cradle to grave"has been established in Northern European countries under the influence of the"Beveridgian Report". From then on, the pension systems have been fully developed and achieved the peak in the 1970s. At the beginning of the 1980s, many countries began to reform the pension systems. The major tendency is to introduce funded systems into the traditional systems to various extends to develop multi-pillar structure pension systems.The study proposes and proves the theoretical analysis framework and the basic criterion of pension reforms from the view of static efficiency and dynamic efficiency of the resources allocation, on the basis of which a partial equilibrium framework is used to analyze the financial sustainability for the reform of Chinese partially-funded pension system and to discuss the optimal options of parametric reform. A General Equilibrium Overlapping Generations Model is used to analysis and appraises the impact of Chinese partially-funded pension system reform on economic growth, income distribution and social welfare.The first chapter is introduction, which formulates the basic issue and its significance, the latest research situation, the study methods, the main content and the innovations.The second chapter focuses on the theoretical research of the pension system efficiency and offers an elementary theoretical analysis framework for the optimal reforms of the pension systems. The efficient criterions for the optimization of pension systems which are highly summarized and refined from the theories of Welfare economics, Neo-classical economics, the new economic liberalism and the middle way thoughts are static efficiency and dynamic efficiency. The static efficiency can ensure the financial sustainability of the pension systems in a long run and optimize the resource allocation. The dynamic efficiency can promote a long-term economic growth, improve social allocation, enhance social welfare and optimize the cross-epoch allocation of the resources. Furthermore, the aim of the pension reforms is to seek the balanced equilibrium between fairness and efficiency, improve the rationality and reality of the efficiencies.The third chapter reviews the historical development and the reform orientation of the modern pension systems,analyzes the operational mechanism of different patterns of the pension systems. The basic concepts of the pension systems has evolved from the concept of punishing for curing or correcting, the concept of intervening economy to enhance social stability, keeping fairness and promoting economic development, the concept of keeping a long-term sustainable development, eliminating poverty, protecting human rights to the concept of seeking the balance between fairness and efficiency, improving system sustainability and enhancing economic growth.Because of the aging population, the Pareto criterion of"Aaron Condition"is not satisfied, a majority countries began to introduce the minor adjustment and partially or fully funded systems. Further research has showed that different system patterns are on the same material basis and for the funded system and the PAYG system, whether good or bad depends on the concrete situation of economical operation. When the economy is on the dynamic efficiency path, which the capital accumulation is not enough, the fully funded system has more advantages over the PAYG system; On the other hand, when the economy is on the path of dynamic inefficiency, which the capital accumulation is more than enough, the PAYG system will make up the defects of the funded system.The fourth chapter analyzes the efficiency of Chilean pension system reform and Swedish pension system reform on the basis of theoretical framework of the second chapter and the third chapter. The result of the analysis shows that the Chilean fully-funded pension system reform enhanced the financial sustainability of the system, the national savings and investments increased, but the Chile-model is not universal for the world because of the problems in designs, management and operation of the system. The Swedish notional defined-contribution (NDC) system reform enhanced the fiscal sustainability of the system, but has its limitation in developing the capital market and promoting the economic growth.The fifth chapter analyzes the Chinese partially-funded system reform. First, it briefly reviews the historical development, illustrates the objective necessity of the reform of the pension system. Second, based on the theoretical framework of the previous chapters, a partial equilibrium framework is used to analyze the static efficiency of Liaoning Pilot model. The result shows that Liaoning Pilot model is financially unsustainable, along with its coverage expansion, the situation will be more challenging. The final solution is that the moderate relaxation of the population may slow down the aging pace to a certain extent, optimize the parameter of payment, adjust the retirement age, increase the return rate of investment and collection rate.The sixth chapter discusses the dynamic efficiency of Chinese partially-funded pension system reform in a general equilibrium framework by means of the Auerbach-Kotlikoff Dynamic Life-Cycle Simulation Model (the A-K model). The mathematic simulation shows that when economy keeps its stability, the reform will promote economic growth, reduce income gaps and improve the representative agent's utility level in an ideal situation of regardless of the cost, thus it explains the contribution of the dynamic efficiency of the reform to the economy. When the government finances the reform cost, the reform promotes the economical growth, reduces income gaps, and improve the representative agent's utility level, the agents have to bear the reform's cost, the consumption level of the retired generation drops. But the switcher cost is in an acceptable scale, and the retired generations consumption level of the steady state will also enhance when the fully-funded system is mature, so according to the Kardor, N—Hicks, J.R. Compensated Standards, the long-term reform of the Chinese partially-funded pension system is dynamically efficient.The seventh chapter analyzes the issues of Chinese partially-funded pension system reform are the aging population, the deficiency of the system parameters, the implicit pension debt, the low return on investments and the inefficient management system.The final solution to increase the efficiency of pension system reform is to increase investment on human capital, enlarge the coverage, increase the retirement age, estabilish the indexation regulation mechanism, finance the implicit pension debt, develop the capital market to increase the return rate of investment and perfect the management system.The conclusion reiterates that Liaoning Pilot of Chinese pension system reform is unsustainable in the finance. The financial sustainability of the system can be improved through moderate population policy and system parameter reforms. If the government finance the reform cost through proper financial policy, the Chinese partially-funded pension system reform would increase the equilibrium output level and consumption level, improve social welfare of the steady state.