Hostname: page-component-745bb68f8f-cphqk Total loading time: 0 Render date: 2025-01-10T19:17:43.638Z Has data issue: false hasContentIssue false
  • English
  • Français

The impact of expected pensions on consumption: evidence from China

Published online by Cambridge University Press:  22 November 2021

Wei Zheng ,
Youji Lyu ,
Ruo Jia  and
Katja Hanewald Open the ORCID record for Katja Hanewald [Opens in a new window]
Wei Zheng
Affiliation:
Department of Risk Management and Insurance, School of Economics, Peking University, Beijing, China China Center for Insurance and Social Security Research (CCISSR), Peking University, Beijing, China
Youji Lyu
Affiliation:
School of Finance, Nankai University, Tianjin, China
Ruo Jia
Affiliation:
Department of Risk Management and Insurance, School of Economics, Peking University, Beijing, China China Center for Insurance and Social Security Research (CCISSR), Peking University, Beijing, China
Katja Hanewald*
Affiliation:
School of Risk and Actuarial Studies, University of New South Wales, Syndney, New South Wales, Australia Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), Syndney, New South Wales, Australia
*
*Corresponding author. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

We study how pension participation and expected pension benefits affect working-age adults’ consumption based on a nationally representative dataset from the China Health and Retirement Longitudinal Study (CHARLS) during the period 2011–2018. We find that the consumption of working-age adults who participate in China's Residents' Basic Pension is 15.4% higher than that of non-participants. Furthermore, we find that if working-age adults' expected pension benefits increase by RMB 1, their consumption will increase by RMB 0.34. Overall, our findings suggest that pension expectations are critical to the consumption decisions of working-age adults and can, therefore, positively affect total domestic consumption.

Keywords

Agingconsumptionpensionretirement

JEL classification

D12: Consumer Economics: Empirical Analysis H55: Social Security and Public Pensions
Type
Article
Information
Journal of Pension Economics & Finance , Volume 22 , Issue 1 , January 2023 , pp. 69 - 87
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aguiar, M and Hurst, E (2005) Consumption versus expenditure. Journal of Political Economy 113, 919–948.CrossRefGoogle Scholar
Attanasio, OP and Brugiavini, A (2003) Social security and households’ saving. Quarterly Journal of Economics 118, 1075–1119.CrossRefGoogle Scholar
Attanasio, OP and Rohwedder, S (2003) Pension wealth and household saving: evidence from pension reforms in the United Kingdom. American Economic Review 93, 1499–1521.Google Scholar
Baldini, M, Mazzaferro, C and Onofri, P (2019) Pension expectations, reforms and macroeconomic downturn in Italy. What can microdata tell us? Applied Economics 51, 1396–1410.CrossRefGoogle Scholar
Bernheim, BD (1989) The timing of retirement: a comparison of expectations and realizations. In Wise, DA (ed.), The Economics of Aging. Chicago: University of Chicago Press, pp. 335–358.Google Scholar
Bottazzi, R, Jappelli, T and Padula, M (2006) Retirement expectations, pension reforms, and their impact on private wealth accumulation. Journal of Public Economics 90, 2187–2212.CrossRefGoogle Scholar
Bucciol, A (2011) A note on social security welfare with self-control problems. Macroeconomic Dynamics 15, 579–594.CrossRefGoogle Scholar
Cai, F, Giles, J, O'Keefe, P and Wang, D (2012) The Elderly and Old Age Support in Rural China: Challenges and Prospects. Washington, DC: The World Bank Press.CrossRefGoogle Scholar
Campbell, JY and Cocco, JF (2007) How do house prices affect consumption? Evidence from micro data. Journal of Monetary Economics 54, 591–621.Google Scholar
Chamon, MD and Prasad, ES (2010) Why are saving rates of urban households in China rising? American Economic Journal: Macroeconomics 2, 93–130.Google Scholar
Chan, S and Stevens, AH (2008) What you don't know can't help you: pension knowledge and retirement decision-making. Review of Economics and Statistics 90, 253–266.CrossRefGoogle Scholar
Chen, J and Huang, S (2013) Trade-offs between bequest motives and wealth effects: is housing reverse mortgaging in China feasible? Economic Research Journal 9, 56–70. (in Chinese).Google Scholar
Chen, D, Xiao, C, Zang, J and Liu, Z (2018) Old-age social insurance and household consumption: evidence from China. Emerging Markets Finance and Trade 54, 2948–2964.CrossRefGoogle Scholar
Cheng, L, Liu, H, Zhang, Y and Zhao, Z (2015) The heterogeneous impact of pension income on elderly living arrangements: evidence from China's new rural pension scheme. Journal of Population Economics 31, 1–38.Google Scholar
Cheng, L, Liu, H, Zhang, Y and Zhao, Z (2018) The health implications of social pensions: evidence from China's new rural pension scheme. Journal of Comparative Economics 46, 53–77.CrossRefGoogle Scholar
Chetty, R, Friedman, JN, Leth-Petersen, S, Nielsen, TH and Olsen, T (2014) Active vs. passive decisions and crowd-out in retirement savings accounts: evidence from Denmark. Quarterly Journal of Economics 129, 1141–1219.CrossRefGoogle Scholar
Clark, RL, d'Ambrosio, MB, McDermed, AA and Sawant, K (2006) Retirement plans and saving decisions: the role of information and education. Journal of Pension Economics & Finance 5, 45–67.CrossRefGoogle Scholar
Dicks-Mireaux, L and King, M (1984) Pension wealth and household savings: tests of robustness. Journal of Public Economics 23, 115–139.Google Scholar
Feldstein, M (1974) Social security, induced retirement, and aggregate capital accumulation. Journal of Political Economy 82, 905–926.CrossRefGoogle Scholar
Feng, J, He, L and Sato, H (2011) Public pension and household saving: evidence from urban China. Journal of Comparative Economics 39, 470–485.CrossRefGoogle Scholar
Gustman, AL and Steinmeier, TL (2015) Effects of social security policies on benefit claiming, retirement and saving. Journal of Public Economics 129, 51–62.Google Scholar
Holzmann, R and Hinz, R (2005) Old age income support in the 21st century: an international perspective on pension systems and reform. World Bank Publications 26, 114–121.Google Scholar
Hong, M (2012) Decomposition of effects of social security on private savings. Journal of Pension Economics & Finance 11, 419–438.CrossRefGoogle Scholar
Hong, JH and Ríos-Rull, JV (2007) Social security, life insurance and annuities for families. Journal of Monetary Economics 54, 118–140.Google Scholar
Hubbard, RG and Judd, KL (1987) Social security and individual welfare: precautionary saving, borrowing constraints, and the payroll tax. American Economic Review 77, 630–646.Google Scholar
Kapteyn, A, Alessie, R and Lusardi, A (2005) Explaining the wealth holdings of different cohorts: productivity growth and social security. European Economic Review 49, 1361–1391.CrossRefGoogle Scholar
Krueger, D and Kubler, F (2006) Pareto-improving social security reform when financial markets are incomplete!? American Economic Review 96, 737–755.Google Scholar
Lei, X, Zhang, C and Zhao, Y (2013) Incentive problems in China's new rural pension program. Research in Labor Economics 37, 181–201.Google Scholar
Leimer, DR and Richardson, DH (1992) Social security, uncertainty adjustments and the consumption decision. Economica 59, 311–335.CrossRefGoogle Scholar
Leung, SF (2002) The dynamic effects of social security on individual consumption, wealth and welfare. Journal of Public Economic Theory 4, 581–612.CrossRefGoogle Scholar
Liu, T and Sun, L (2016) Pension reform in China. Journal of Aging & Social Policy 28, 15–28.CrossRefGoogle ScholarPubMed
Liu, H, Sun, Q and Zhao, Z (2014) Social learning and health insurance enrollment: evidence from China's new cooperative medical scheme. Journal of Economic Behavior & Organization 97, 84–102.CrossRefGoogle Scholar
Ministry of Human Resources and Social Security (2020) Statistical bulletin on the development of human resources and social security in 2019.Google Scholar
National Bureau of Statistics (2009) China Statistical Yearbook 2008. Beijing: National Bureau of Statistics.Google Scholar
National Bureau of Statistics (2020) China Statistical Yearbook 2019. Beijing: National Bureau of Statistics.Google Scholar
Park, H and Feigenbaum, J (2018) Bounded rationality, lifecycle consumption, and social security. Journal of Economic Behavior & Organization 146, 65–105.Google Scholar
Petersen, MA (2009) Estimating standard errors in finance panel data sets: comparing approaches. Review of Financial Studies 22, 435–480.CrossRefGoogle Scholar
Qi, L and Prime, PB (2009) Market reforms and consumption puzzles in China. China Economic Review 20, 388–401.Google Scholar
Rojas, JA and Urrutia, C (2008) Social security reform with uninsurable income risk and endogenous borrowing constraints. Review of Economic Dynamics 11, 83–103.CrossRefGoogle Scholar
State Council (2009) Guidelines on carrying out pilot programs for the new rural residents’ basic pension. Available at http://www.gov.cn/zwgk/2009-09/04/content_1409216.htm.Google Scholar
State Council (2011) Guidelines on carrying out pilot programs for the urban residents’ basic pension. Available at http://www.gov.cn/zhengce/content/2011-06/13/content_7241.htm.Google Scholar
State Council (2014) Opinions on establishing a unified basic old-age insurance system for urban and rural residents. Available at http://www.gov.cn/zhengce/content/2014-02/26/content_8656.htmGoogle Scholar
State Council (2018) Notice on issuance of implementation scheme for improving the system and mechanism for promoting consumption (2018–2020). Available at http://www.gov.cn/zhengce/content/2018-10/11/content_5329516.htm.Google Scholar
State Council (2019) The 2019 Government Work Report. Available at http://www.gov.cn/premier/2019-03/16/content_5374314.htm.Google Scholar
Van Dullemen, CE, Nagel, I and de Bruijn, JMG (2017) Are the Chinese saving for old age? Journal of Population Ageing 10, 287–310.CrossRefGoogle ScholarPubMed
Venti, SF and Wise, DA (1990) Have IRAs increased US saving? Evidence from consumer expenditure surveys. Quarterly Journal of Economics 105, 661–698.Google Scholar
Wang, D (2006) China's urban and rural old age security system: challenges and options. China & World Economy 14, 102–116.Google Scholar
Zhang, CC and Chen, BK (2014) Can ‘public pension system’ substitute ‘family mutual insurance’? Economic Research Journal 49, 102–115. (in Chinese).Google Scholar
Zhang, J and Zhang, J (2004) How does social security affect economic growth? Evidence from cross-country data. Journal of Population Economics 17, 473–500.CrossRefGoogle Scholar
Zhang, CC, Giles, J and Zhao, YH (2014) Policy evaluation of China's new rural pension program: income, poverty, expenditure, subjective wellbeing and labor supply. China Economic Quarterly 14, 203–230. (in Chinese).Google Scholar
Zhao, Q, Li, Z and Chen, T (2016) The impact of public pension on household consumption: evidence from China's survey data. Sustainability 8, 890–904.CrossRefGoogle Scholar
Zheng, W (2007) Reflection on the dilemma of China's rural pension system. Insurance Studies 11, 39–42. (in Chinese).Google Scholar