A Study on Fiscal Risk of China’s Employees Basic Pension System under Longevity Risk

Min Le, Xinrong Xiao, Dragan Pamučar and Qianling Liang
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Min Le: School of Economics and Management, Zhejiang Business Technology Institute, Ningbo 315012, China
Xinrong Xiao: School of Banking and Finance, University of International Business and Economics, Beijing 100029, China
Dragan Pamučar: Department of Logistics, University of Defence, 11000 Belgrade, Serbia
Qianling Liang: School of Insurance, Central University of Finance and Economics, Beijing 102206, China

Sustainability, 2021, vol. 13, issue 10, 1-23

Abstract: It is generally accepted that China’s Employees Basic Pension System (CEBPS) cannot cover its expenses. The government needs to fill the gap in income and expenditure with fiscal revenue to ensure sustainability of the system, which may cause it to take fiscal risk caused by the volatility of the fund gap. In this article, through the establishment of a prediction model for the income and expenditure of CEBPS with dynamic mortality, we aimed to measure the fiscal risk caused by longevity risk and provide policy basis for the government. We found that longevity risk leads to serious fiscal risk. The income and expenditure gap of CEBPS fluctuates greatly, and the 2.5% and 97.5% quantiles of fund balance in 2067 are 1.52 and 0.44 times the expected value, respectively. The knock-on effect of fiscal risk, measured by value-at-risk (VaR), is 1.15 times gross domestic product and 4.75 times state fiscal expenditure in 2020. In this article, we not only calculate the expected value like the other literatures but also discuss the volatility of the CEBPS fund gap.

Keywords: China’s Employees Basic Pension System; dynamic stochastic model; the fund gap; fiscal risk; longevity risk (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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