Partially funded public pension, human capital and endogenous growth

Abstract

Employing an endogenous growth model with human capital, this paper investigates China’s partially funded public pension system. We examine the effects of the firm’s contribution rate and individual’s contribution rate on the per capita income growth rate, population growth rate, saving rate, education expense ratio and net wealth transfer ratio. Raising the firm’s contribution rate increases the per capita income growth rate, saving rate, net wealth transfer ratio and education expense ratio, whereas it decreases the population growth rate. Raising the individual’s contribution rate decreases the per capita income growth rate, saving rate and education expense ratio, whereas it increases the population growth rate, but has no effect on the net wealth transfer ratio. Integrating the important essential policies and the current economic goals of China and balancing the large difference between the effects of the two contribution rates on the endogenous variables raising the individual’s contribution rate by a large margin and the firm’s contribution rate by a little has more advantages than disadvantages. The real contribution rates can be raised as long as the government verifies the number of employees and payroll in practice.