The intergenerational education spillovers of pension reform in China

Cheng Yuan (), Chengjian Li () and Lauren A. Johnston ()
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Cheng Yuan: Peking University
Chengjian Li: Development Research Center of the State Council
Lauren A. Johnston: University of Melbourne

Journal of Population Economics, 2018, vol. 31, issue 3, No 1, 701 pages

Abstract: Abstract Economic theory establishes that pension privatization weakens the link between old and young and so reduces the incentive to invest in public education in an economy with lower return rate of capital than growth rate of wage. However, empirical studies of the link change are few. In this paper, we investigate the effects of pension privatization and the central government’s subsidy to individual accounts on public education spending in a three-period overlapping generation model. And then, we take contemporary pension reforms in a number of Chinese provinces as offering natural experiment conditions. Using a difference-in-difference framework and 282 municipal districts panel data over years 1998–2009, we test the pension-education theoretical link change. Both our theoretical and empirical results confirm that pension privatization is adversely associated with local public spending on education in China. Private pension subsidies, moreover, magnify this effect. Our study supports the theoretical assertion and selective empirical findings of a negative intergenerational effect of pension privatization.

Keywords: Pension system; Fully funding individual accounts; Public education spending; Local public finance (search for similar items in EconPapers)
JEL-codes: H52 H55 I22 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00148-018-0690-3

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