The intergenerational education spillovers of pension reform in China
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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.
KeywordsPension system Fully funding individual accounts Public education spending Local public finance
JEL classificationH52 H55 I22
We thank the Editor Alessandro Cigno and two anonymous referees for their helpful comments and suggestions; participants of the 22nd (2016) Panel Data Conference and a Melbourne University seminar and Jie Ma for important feedback; and Hui Chen for research assistance.
This study received financial support from a Dyason Fellowship.
Compliance with ethical standards
Conflict of interest
The authors declare that they have no conflict of interest.
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