Public Pension and Regional Disparity in Household Consumption

Abstract

Using an original provincial panel data from 2001 to 2014, the dynamic longitudinal data analysis method, and a decomposition method, we investigate the impact of public pension coverage and replacement rates of the Employees’ Basic Pension Insurance scheme on regional consumption disparity in urban China. The three conclusions merge: First, the pension coverage rate is higher, whereas the pension replacement rate is lower in the eastern region than in the central and western regions. Second, the effects of the pension coverage and replacement rates on household consumption differ by region. Third, the two components (differences in endowment and price components) contribute to the formation of regional consumption disparities. Both the pension coverage and the replacement rates contribute to reducing regional consumption disparities between the eastern and other regions (especially the western region). These results suggest that policies to expand the coverage rate of public pensions and increase income in less-developed regions may contribute to reducing consumption inequality in China.