Fertility Policies and Social Security Reforms in China, Nicolas Coeurdacier, Stéphane Guibaud and Keyu Jin (PDF, 660Ko), 2014, IMF Economic Review, 62(3), 371-408.

This paper analyzes the impact of relaxing fertility controls and expanding social security in China. We develop an overlapping generations model in which fertility decisions and capital accumulation are endogenously determined in the presence of social security. In our model, children are an alternative savings technology—as they transfer resources to their retired parents. Important feedback links arise between fertility and social security variables: an expansion of social security benefits reduces fertility—partially offsetting the effects of relaxing the one-child policy. The feedback loop between social security variables and fertility suggests that abandoning fertility restrictions may not be as effective in helping to finance China’s intended pension reform, especially if children are an important source of old-age support. The sustainability of the pension system is particularly at risk in the event of a growth slowdown. The objective of pension reforms may also be incongruent with other reforms, such as financial liberalization and financial integration.

Nicolas Coeurdacier is Associate Professor at the Sciences Po Departement of Economics
Stéphane Guibaud is Assistant Professor of Finance  at the Sciences Po Departement of Economics
Keyu Jin is Assistant Professor  at the LSE Centre for Macroeconomics