Research Of The Economic Effects Of Tax-deferred Employer Pensions

The aging problem has become the globle challenge we all have to deal with in the 21 st century.As the world’s most populous country,China will contribute a lot to tackling global aging by solving the problem of supporting the old properly.The social security system almost covers all Chinese citizens now and the financial pressure is also growing with the deterioration of the aging problem.The social security is facing great challenge in meeting the basic living needs of the old,not to mention guarantee that the living standard of the retired do not worsen.So it is necessary to promote the development of the second pillar of China’s old-age security system,employer pension.Against this context,based on the employer pension system and tax-deferred policy and economic effects in China,this paper builds a general equilibrium model of overlapping generations to analyze the economic effects of tax-deferred employer pension,namely how the tax-deferred policy for employer pension will affect the economic variables,such as the capital per worker,interest rate,wage,savings and consumptions.The numerical results are supposed to be of some reference value for the governor to make any policy related.There are seven chapters in this paper,the main content are as follows:The first chapter is introduction.It introduces the research background and the research value of the whole paper.Based on the literature review,this chapter then gives the research approach and main content,and points out the contribution and deficiency of the paper.The second chapter is the basic general equilibrium model.This chapter first gives a brief introduction of the main conception and economic assumptions related in the paper,and then it builds two models according to the economy with and without tax-deferred policy respectively,following which are the state solutions of the economic variables.The numerical results show how the state solutions change when the tax-deferred policy is indroduced.Here are the research results.The tax-deferred policy for employer pension will increase the capital and output,decrease the interest rate and boost the wage level,increase savings and promote consumptions in both periods,and improve the individual’s welfare.The changes of individual contribution rate,employer matching rate and tax rate in working period do not affect how the tax-deferred employer pension influences economic variables,but with the increases of the contribution rate,matching rate and tax rate,the tax-deferred policy will have bigger effects on the economic variables,surely to very diferrent extents.Besides,the higher the tax rate in working period,the more effective the tax-deffered policy on economic variables,but it doesn’t imply a positive stimulation of a higher tax rate on the economy.On the contrary,the increase of the tax rate in working period results to reductions of the capital per labor,output per labor,wage level and consumptions,while an increase of the interest rate.Higher tax rate in working period does no good to the growth of the economy and the improvement of the total welfare.The third chapter analyzes the economic effects of tax-deferred employer pension including the social security in the basic model adopted in chapter two.It first describes the development situation and literatures related,and then analyze how the changes of contribution rate and matching rate of social security will influence the economic effects of the tax-deferred employer pension.The research results imply that,the tax-deferred employer pension will also increase the capital per labor,output per labor,wage level and consumptions while ruduce the interest rate when including the social security in the basic model.The changes of contribution rate and matching rate of social security have little effect on how the tax-deferred employer pension influences the economic variables.We can also say that there is not much difference whether introducing the social security to the general equilibrium model or not,which implies that we can adopt the model in chapter two with some adjustments and alteration in the following chapters.Besides,we find that the increase of the employer matching rate of the social security is not helpful both to the economic growth and social welfare in this chapter.The forth chapter studies how the tax-deferred employer pension affects different-income households.We divide the households into three categories,low-income,middle-income and high-income,to research the different effects of tax-deferred employer pension on different households.The research results show that,all the households will enjoy a wage rise and a consumption increase due to the tax-deferred policy for employer pension,the higher the contribution rate or the matching rate,the more benefit the households will enjoy,but to very different extents.The wage rise and working period consumption increase of the high-income are much higher than those of the low-income.The retirement consumptions of the middle-income and high-income will increase while the retirement consumption of the low-income decreases in this chapter,the higher the contribution rate or the matching rate,the bigger the increase(or decrease)amplitude.The research results imply that the welfare improvement of the high-income is much higher than that of the low-income.The policy implication is that such a tax-deferred policy for employer pension might be unfair to some extent.The so called equal tax-deferred policy is helpful to the high-income while does no good to the low-income.Tax policy,as the secondary allocation toll,is unable to accomplish wealth redistribution,which is deviated from the policy objective.The fifth chapter is financial budget balance and tax-deferred employer pension.It first gives a brief presentation of the conception of fiscal revenue and expenditure,and the methods to make up for the revenue reduction due to the tax-deferred policy for the employer pension.Since the issuance of government bonds is unsustainable,we analyze the similarities and differences between the economic effects of tax-deferred employer pension,under two different budget-balanced methods,namely cutting down government purchasing and raising tax rate in working period.The results are as follows,the tax-deferred employer pension increases the capital per labor,output per labor,wage level and consumptions while ruduces interest rate under either budget-balanced method.While if the government chooses to cut down its purchase,the tax-deferred employer pension increases or decreases the economic variables above to larger amplitude,and the retirenment consumption increases due to such a tax-deferred policy.On the contrary,if the government chooses to increase the tax rate in working period,the retirement consumption decreases once the tax-defferred policy for employer pension is put into practice.The sixth chapter is bequest motive,bequest taxtation and tax-deferred employer pension.Based on the fact that the employer pension is allowed to be left over to the next generations,we bring the bequest taxation into the general equilibrium model in chapter two to analyze how the bequest taxation will affect the economic effects of the tax-deferred employer pension.The research results show that,if the bequest is tax free,the effects of the tax-deferred policy for employer pension on economic variables stay the same as those in chapter two,namely increases of the capital per labor,output per labor,wage level and consumptions while decrease of interest rate.If the bequest is not tax free,the lower bequest taxation weakens the positive stimulation of the tax-deferred employer pension on the economy.While if the bequest tax rate is too high,say 6% in this chapter,the tax-deferred employer pension can still increase capital stock,output,wage level and savings and decrease interest rate,only to smaller amplitude,but the reduction of the consumptions in both periods leads to utility reduction and welfare loss.To summarise,the tax-deferred policy for empoyer pension stimulates the economic growth and improve the social welfare on the premise that the bequest is tax free,or at least below some certain level.The last chapter is conclusions and future work prospects.