INCOME REDISTRIBUTION IN URBAN CHINA BY SOCIAL SECURITY SYSTEM—AN EMPIRICAL ANALYSIS BASED ON ANNUAL AND LIFETIME INCOME

Authors

  • LIXIN HE,

    1. He: Associate Professor, School of Economics, Fudan University, Fudan, Shanghai. Phone and Fax 0086-21-5566-5313, E-mail lixinhe@fudan.edu.cn
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  • HIROSHI SATO

    1. Sato: Professor, Graduate School of Economics, Hitotsubashi University, Hitotsubashi, Tokyo. Phone and Fax 0081-042-580-8265, E-mail satohrs@econ.hit-u.ac.jp
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    • The first draft was finished when L.H. was a foreign researcher of the Japan Society for the Promotion of Science (JSPS) and visiting researcher of the Graduate School of Economics, Hitotsubashi University. We are grateful to anonymous referees and Professor Shi Li of Beijing Normal University for constructive comments and to participants at the CES 2008 China Conference (April 17–19, 2008, Nankai University, Tianjin) for useful discussions on the earlier drafts. Thanks also go to Dr. Jin Feng for her generous help with English editing of this article and to Xinran Yang for her assistance. Financial support by the JSPS (Postdoctoral Fellowship for Foreign Researchers No. 18.06312, Grants-in-Aid for Scientific Research No. 18203018 and No. 21330065), Shanghai Pujiang Program, Shanghai Leading Academic Discipline Project (Project No. B101), the “Research Unit for Statistical and Empirical Analysis in Social Sciences” (G-COE Hi-Stat), Hitotsubashi University, and Hitotsubashi University East Asian Policy Research Project are greatly appreciated.


Abstract

This study investigates the redistributive effect of social security reform in urban China using the nationally representative urban household surveys of 1995 and 2002. The main findings are as follows. First, public pension is the main income for the elderly in urban China. The majority of people aged 60 and over (72% in 1995 and 82% in 2002) receive a pension. Second, the social security system in urban China has increased the income of low-income and older age groups and reduced the relative poverty rate. However, the redistributive effect did not offset the expanding income inequality, which resulted in the Gini coefficient of redistributed income in 2002 being higher than that in 1995. Third, during 1995 and 2002, both low-income and high-income groups received a positive net benefit from the social security system, but the net benefit increased with income. The Chinese social security system lacks progressivity in contribution, and does not favor the poor in terms of benefits. Fourth, assuming that the reformed policy was applied to public sector employees, the long-term redistributive effect of the pension system for the working population, calculated using their lifetime income, is larger. (JEL D31, H55, I38)

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