Median Voter Equilibrium Of Pension Tax Rate

As people in our country are more and more concerned about the problems of pension nowadays, which include that the self-support indexing investment portfolio of social security fund had great deficits these years, some regions plan and prepare to postpone the retirement age and aging of population enlarges the gap of pension, this thesis also analyses the pension which is really a hot topic. This thesis not concentrates on how to manage social security fund or how to invest it, and not intends to compare the good and bad of every kinds of pensions system or to choose the best one for our country either. I mainly focus on proportion of pension tax rate. Under a known social pension system which is called the "pay-as-you-go", based on a simple Media Voter Theorem, this thesis brings in intergeneration altruism to study how to find the median voter’s choice of proportion of pension, the factors which influence the proportion and why the proportion is affected by these factors. The equilibrium rate of pension which I study in this thesis is part of the new political economics. A political-economic equilibrium must satisfy three conditions:firstly, economic equilibrium:for any given policy, economic decisions are optimal for private agents and markets clear; secondly, political equilibrium:in every period, the policy implemented is preferred to any other policy by a majority of the voters currently alive; thirdly, rationality: the expectations of individuals in their roles as economic agents and voters are fulfilled.Before the analysis of theoretical model, it is necessary to make clear of questions below to lay a solid foundation for the theory of this theses in literature review of introduction. First, correlation theory about majority voting rules; second, Median Voter Theorem and its application condition; thirdly, ideology and its importance in collective action; fourthly, necessity and reason of bringing in the intergeneration altruism; fifthly, domestic and overseas study of the equilibrium rate of pension. In this part, I review from three angles including income and redistribution, population, intergeneration. The theoretical model of this thesis is under pay-as-you-go pension system. At first, through a simple pension redistribution, I discuss about how inequity degree of income influences the equilibrium rate of pension. Then I extend this model without intergeneration altruism temporarily, because of time inconsistency, three generations(old/middle/young) will reach their equilibrium respectively under their own utility function and constraint condition. At last, on this basis, I bring in intergeneration altruism which means the three generations are not completely independent when maximizing their own utility function. They also have to take the other two generations’ utility into consideration. Under this way,I reach to economic equilibrium. Then using Median Voter Theorem, I reach to political equilibrium.The third part of this thesis is empirical study. At the beginning, I explain every data in the linear regression model. Then I use Eviews to do regression analysis and hypothesis testing to proof the conclusion in theoretical model. To put it simply, the empirical study verifies that inequity degree of income and the equilibrium rate of pension have positive relationship qualitatively and verifies that discount rate and the equilibrium rate of pension have negative correlation and population growth rate and the equilibrium rate of pension have positive correlation quantificationally.The fourth part is policy implication. I mainly pointed out that the most democratic scheme to decide the equilibrium rate of pension is to choose the median voter’s choice when all the people can vote for their preference with complete information. Although our country does not use referendum, Median Voter Theorem still provides a new angle to be more democratic and fair. Moreover, under our country’s own reality, persistent increase of the equilibrium rate of pension does not consider about the preference of young people who are new workers, at the same time, it also neglects the intergeneration altruism of old people. So more studies are needed about if increasing the equilibrium rate of pension can compensate the gap of pension because of aging of population.The last part is about innovation and problems of this thesis. When considering the intergeneration altruism, especially when it comes to old people, the government cannot put them in the fixed benefit group, because old people will vote depend not only on their own condition but also on their household condition, under this way, they may not prefer to the highest equilibrium rate of pension. At the same time, this thesis studies the negative relationship between discount rate and the equilibrium rate of pension theoretically and empirically. Then I summarize the problems existing in this thesis and give some explanations which include dilemma of majority of voting rules, defect of Median Voter Theorem and its limitation, double peculiarities of ideology, defect of the theoretical model, accurancy of the data in empirical study and applicability of pay-as-you-go pension system in our country. When it come to the next step, I focus on the endogenous of the growth rate of population.