The role of public pensions in income inequality among elderly households in China 1988–2013

Jinjing Li, Xinmei Wang, Jing Xu, Chang Yuan

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Abstract

Using data from the Chinese Household Income Project surveys for 1988, 1995, 2002 and 2013, we investigate the role of public pensions in income inequality among households with elderly members across two decades of pension policy reforms. We examine the distribution and role of public pensions at a national level and analyse the evolution of the contribution of public pensions to national income inequality across a much more extended time period than earlier studies, which have generally focused on regional changes over short periods. Our findings suggest that public pensions have become the most important source of income for households with elderly members on average in China, but the distribution of pension income is highly unequal, with a Gini coefficient of 0.74 in 2013. Public pension income has been the largest source of income inequality for elderly households since 2002 and contributed to more than half of total income inequality in the most recent year of the survey. This finding is robust against variations in the income inequality measures used. Additionally, our analysis suggests unequal distribution of pension benefits is the primary driver of pensioners’ income inequality. Among several hypothetical policy changes, ensuring a minimum pension benefit for all existing pensioners seems to be the mo st fiscally effective option in reducing income inequality, with a 0.8% reduction in the Gini coefficient for a 1% increase in public pension expenditure.
Original languageEnglish
Article number101422
Pages (from-to)1-23
Number of pages23
JournalChina Economic Review
Volume61
DOIs
Publication statusPublished - 1 Jun 2020

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