Will China's demographic transition exacerbate its income inequality?–CGE modeling with top-down microsimulation

ABSTRACT

Demographic transition due to population aging is an emerging trend throughout the developing world, and it is especially acute in China, which has undergone demographic transition more rapidly than have most industrial economies. This paper quantifies the distributional effects in the context of demographic transition using an integrated recursive dynamic computable general equilibrium model with top-down behavioral microsimulation. The results of the poverty and inequality index indicate that population aging has a negative impact on the reduction of poverty while its impact is positive with regard to equality. In addition, elderly rural households are experiencing the most serious poverty, and their inequality problems compared with other household groups and within-group inequality worsen with demographic transition. These findings not only advance the previous literature but also deserve particular attention from Chinese policy-makers.

KEYWORDS:

• Demographic transition
• poverty
• inequality
• CGE model

JEL CLASSIFICATION:

• J11
• D58
• D63
• D10

Acknowledgments

We are grateful to the Partnership for Economic Policy (PEP) Network for providing an opportunity to interact with computable general equilibrium modelers across countries, to Dario Debowicz of IFPRI for sharing the microsimulation STATA code, and to Angga Pradesha for his CGE modeling skill. We also would like to acknowledge the valuable suggestions we received from Samuel Morley, Xiaobo Zhang, and Xinshen Diao from IFPRI during the preparation of the earlier draft.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. In China's household registration system the households are classified into urban household and rural household. In Chinese, it is often referred as Hukou.

Additional information

Funding

We would like to acknowledge support from Zhejiang University Major Project of Humanities and Social Science Research projects [grant number 2013QN046]; Natural Science Foundation of China [grant number 70673035, 71403236]; Natural Science Foundation of Zhejiang [grant number LY17G030023]; the CGIAR Research Program on Policies, Institutions and Markets led by the International Food Policy Research Institute (IFPRI).

Notes on contributors

Xinxin Wang

Xinxin Wang, assistant professor, School of Economics, Zhejiang University of Finance and Economics, Hangzhou, China. Her research interest focuses on income distribution, population aging, and urbanization. Some of her recent publications include Changes in the population structure, economic growth and income distribution, Zhejiang University Press (2015) and “Food safety regulatory systems in Europe and China: A study of how co-regulation can improve regulatory effectiveness” Journal of Integrative Agriculture (2015).

Kevin Z. Chen

Kevin Z. Chen, senior research fellow and China program leader, International Food Policy Research Institute, Washington, DC. His recent research focuses on macroeconomic modeling, food safety and value chain development, climate change adaptation, and poverty alleviation. A few of his recent publications include “Information provision, policy support, and farmers' adaptive responses against drought: An empirical study in the North China Plain” Ecological Modelling (2015).

Sherman Robinson

Sherman Robinson, senior research fellow, International Food Policy Research Institute, Washington, DC. His research focuses on long-run modeling, international trade, economic growth, agricultural and resource issues, and climate change adaptation in developing countries. Some of his recent publications include “Natural resource revenue, spending strategies and economic growth in Niger” Economic Modelling (2016).

Zuhui Huang

Zuhui Huang, professor and dean, Chinese Academy of Rural Development, Zhejiang University, Hangzhou, China. His research interest focuses on cooperatives, industrial organization and institution, and land tenure. Some of his recent publications include “Is small still beautiful? A comparative study of rice farm size and productivity in China and India” China Agricultural Economic Review (2015).