Research On The Economic Effects Of China’s New Rural Pension System

Under the background of increasingly serious population aging, the traditional family support and land security pattern are challenged in rural area of China. In order to solve rural residents’ old-age security problem and promote the balanced supplying of public services for the urban and rural inhabitants, as well as to improve the rural old-age security system, rural residents have experienced the transition from spontaneous and traditional family support pattern to collective economy security and then to the exploration and pilot of social security. Based on the spirit of the 17th Party Congress and the Third Plenum of the 17th Communist Party of China Central Committee, the State Council began to pilot the new type of rural pension system (hereinafter referred as "the New Rural Pension") in September of 2009, and achieved complete coverage at the end of 2012. With the implementation and comprehensive promotion of the New Rural Pension (NRP), the policy effects and impacts on rural residents’ life are concerned by the academia and government. But the existing literature have not formed a unified framework of theory and judgment, and not given stable conclusions. Therefore, this thesis takes the economic effects of the New Rural Pension as research subject. First of all, the paper preliminarily establishes a theoretical analysis framework of the economic effects of NRP, which is based on the theory of Welfare Economics, Public Goods, Life Cycle Hypothesis and Overlapping Generations Model. Then, empirical analyses of the impacts of NRP on rural residents’ income, consumption and labor supply are given. Finally, the paper makes an evaluation of the operation effects of NRP, and puts forward some corresponding policy recommendations based on the conclusions of empirical analyses, in the hope of providing theoretical bases and empirical supports with reference value.In the aspects of research methods, following the principle of combination of normative analysis and empirical analysis, the paper sets up an Overlapping Generations Model with heterogeneity in consideration of rural environment in China, on the basis of which it investigates the economic effects of NRP using multiple regression model, Heckman two-stage approach, Difference-in-Difference estimation, Instrumental variable method and other quantitative methods, with CHARLS national survey data and macro county-level panel data.The structure of this thesis is as follows.Chapter 1 is introduction in which the paper tells about the research background, basic framework, main contents, research methods and innovation points.Chapter 2 is literature review. For the study of foreign scholars, this part mainly generalizes the impacts of PAYG system and fund accumulation system on the relevant economic variables. For domestic scholars, it summarizes from the economic effects of urban pension and relevant research of NRP.Chapter 3 is theoretical analysis of economic effects of NRP. Based on the theory of Welfare Economics, Public Goods, Life Cycle Hypothesis and Overlapping Generations Model, this part sets up an Overlapping Generations Model with heterogeneity, investigating the economic effects might be produced by NRP in the framework of general equilibrium analysis. Then it analyzes the mechanism of economic effects from the perspective of characteristics of NRP.Chapter 4 is empirical analysis of effects of NRP on rural residents’ income. This part measures the impact of NRP on rural residents’poverty degree using FGT poverty index, then makes empirical tests on poverty reduction and income growth effects by multiple regression and Instrumental Variable method. Concerning that pension may influence the amount supported by children, it makes quantitative analysis of impacts of NRP on intergenerational transfers.Chapter 5 is empirical analysis of impacts of NRP on rural residents’ consumption. This part first estimates the impact of NRP on rural residents’ consumption behavior with micro household survey data, then verifies the impact of NRP on residents’ consumption willing using macro panel data of Shandong province.Chapter 6 is empirical analysis of impacts of NRP on rural residents’ labor supply. This part makes empirical analysis from labor participation and labor supply time with Heckman two-stage approach respectively.Chapter 7 gives conclusions and policy implications. This part summarizes the research, makes overall evaluation and judgment of the economic effects of NRP basing on the above theoretical and empirical conclusions, then puts forward some corresponding policy recommendations. The basic conclusions are as follows.Firstly, the NRP reduces poverty and increases income. The NRP plays a positive role in increasing rural residents’ income and reducing poverty, enhancing their economic guarantee, and achieves the expected policy goal. As the main target group, the elderly in rural area get more benefit from NRP policy, people in the payment stage neither fall into poverty nor increase their economic burden. However, the poverty reduction effect of NRP is limited, it only alleviates low level poverty.Secondly, the NRP ’crows out’ children’s economic support. From the aspect of intergenerational transfer, NRP makes a crowding out effect on children’s economic support, reflecting the trend that NRP which as the representative of formal social security replaces the economic support function of traditional elderly security. With the increase of operating time of NPR, our understanding of NRP is more comprehensive, the influence of NPR on intergenerational transfer gradually disappears.Thirdly, the NRP promotes household consumption of rural residents. The implementation of NRP does have a promoting effect on the rural household consumption, especially significant for the elderly who just enrolled in pension receiving stage and the poverty group at the payment stage. Rural residents have good expectations of NRP policy, and usually have strong willingness to consume the basic pension subsidy which is the kind of transfer income with smaller uncertainty. The impacts of NRP on consumption are more derived from policy oriented effect.Fourthly, the NRP reduces labor supply of rural residents. The NRP improves overall labor participation rate of rural residents significantly, but reduces total work hours. According to the work type, the influences of NRP on population over 60 and under 60 are different. With the increase of insured periods, the labor supply responses of participants is changing.In summary, following the fundamental principle of "basically-guaranteed, widely-covered, elastic and sustainable", the NRP has attained primary effects in "meeting the basic demands of rural elders, promoting family harmony, increasing peasants’income", "extending domestic consumption demand", "narrowing the gap between urban and rural gradually, changing the dual structure of urban and rural, promoting the balanced supplying of public services" and other policy targets. However, we should see that, the development of social economy brings opportunities, but also challenges.Because of the low security level, the influencing effect of NRP is limited, the sustainability is short. There is a long way to go to actually achieve the sense of security and expending domestic demand of rural residents, needing to continue to seek a social security system which is appropriate to market and economic development, letting the rural elderly enjoy a comfortable retirement.