Public pension and household saving: Evidence from urban China

Feng, Jin, He, Lixin, and Sato, Hiroshi-Public pension and household saving: Evidence from urban China We relate household savings to pension reform, to explain the high household savings rates in urban China from a new perspective. We use the exogenous - policy-induced - variation in pension wealth to estimate explicitly the impact of pension wealth on household savings, and obtain evidence of a significant offset effect of pension wealth on household savings. Although the size of the effect depends on the parameter values assumed, the finding that household savings are affected by pension reform is robust. Our estimates show that, under plausible scenarios, pension reform boosted household savings rates in 1999 by about 6-9 percentage points for cohorts aged 25-29 and by about 2-3 percentage points for cohorts aged 50-59. Our results also indicate that declining pension wealth reduces expenditure on education and health more than on other consumption items. Journal of Comparative Economics 39 (4) (2011) 470-485. School of Economics, Fudan University, 600 Guoquan Rd., Shanghai 200433, China; Graduate School of Economics, Hitotsubashi University, Tokyo 186-8601, Japan. (C) 2011 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.