| This paper adopts a general equilibrium framework to analyze and simulate the Chinese social security system in an overlapping generation model. An individual's optimal consumption/saving behavior and life long utility level vary under different social security systems. Data of the current social security system implemented in Qingdao, China, which is representative of the country, is used. It shows that the fully funded social security system will provide individuals the highest life long utility level compared to other systems at steady state. Welfare analysis looks at the welfare variations which make people indifferent with the systems at the steady states and at the reform period. Transition paths of reform from PAYGO to partially funded system, then to fully funded system or directly from PAYGO to fully funded system are depicted by periods. These three types of reform will unambiguously make the young generation from the reform period better off, yet the old generation worse off. However, earlier forecasts of the reform and welfare compensation from the government can make old generation as well of as without the reform. |
