The Impact Of Demographic Transition On Income Distribution In China

Demographic transitions influenced by population aging have been attracting increasing attention throughout China and are emerging as an important issue in most developing countries. However, only a few researches have studied the relationship between income distribution and demographic transition. Moreover, the general trend of such researches regarding this relationship is inconclusive as there is evidence both supporting a positive and a negative relationship.This research investigated the evolution of poverty and inequality in the context of demographic transition. An integrated recursive dynamic computable general equilibrium (CGE) model with a behavior micro simulation model is used to measure the income changes in light of the shock of demographic changes, which includes the basic scenario such as population aging, gender shifts, urbanization and human capital structure changes that contribute to real economic development. A comparative scenario with demographic change simulations other than population aging is adopted for capturing the real impact of population aging. In order to quantify the economic and social effect with government dempgraphic-related policies, another four scenarios are adopted with the demographic related policies to test the impact of different policy measures to the economic growth.The results from the CGE model reveal that population aging do slow down China’s economic growth and the growth rate keep at5.513%annual growth rate from2025to2030. All the policies would help to offset the negative of population aging and in which improving the human capital accumulation level is test to be the most effective measure for keeping the sustainable growth of China.With the baseline scenarios and the non-populaiton aging scenarios at hand, both of the FGT index and the Gini coefficient are employed to estimate the poverty and inequality changes due to demographic transition. A regression-based inequality decomposition with the Shapley value decomposition method is further used to identify the relative contribution of each demographic variable to income inequality. The results found that a significant portion of the decrease in poverty and an increase in inequality is expected in the context of the multi-demographic transition. However, inequality is negative during population aging as there would be a sharp increase in income inequality with the comparative scenario, which excludes the population aging transition. The process of poverty reduction is much slower with population aging’s slowdown of economic growth. These demonstrate that measures for stimulating the second demographic dividend should be carried out, such as through further enhancement of education for human capital accumulation to increase labor productivity, and the adjustment of the industry structure through the institutional arrangement. The reduction of poverty and inequality is an important policy objective for China as well as for other developing countries. The studies on China’s case indicate that the old population, especially the rural old population, should be emphasized because both poverty and inequality are more serious amongst these groups than amongst other household groups. This suggests that it is important to target the improvement of the social pension insurance system, especially for China’s rural areas where China’s social insurance coverage is insufficient. In addition, urbanization, which is measured by urban population share in our scenario, may be able to reduce poverty, but not inequality. Relevant measures to address urbanization, such as ensuring migrant’s citizenship, improving the educational system, and enhancing social security and medical security, especially for those households who were in rural areas, may be helpful for reducing the inequality associated with the process of urbanization. Further researches on specific demographic structure changes (such as urbanization, human capital accumulation and gender ratio shifts) with different scenarios can be studied to find the demographic reason for poverty and inequality. Future research subjects should also focus on China’s rural population and the related economic and social problems as well.