Reducing Endowment Insurance Contribution Rate and Potential Economic Growth Rate

Abstract

Facing the downward trend of economic growth year by year, in order to promote the sustained and stable development of China’s economy, and smoothly achieve two hundred-year goals, reducing the tax burden of enterprises, especially reducing the contribution rate of enterprise endowment insurance, has become an important policy grasp. On May 1, 2019, China reduced the contribution rate of enterprise endowment insurance to 16%. Under this background, will reducing the contribution rate of enterprise endowment insurance to 16% promote the real potential economic growth rate in the future, and to what extent can reducing the contribution rate of enterprise endowment insurance promote economic growth? Is it true that the lower the contribution rate of enterprise endowment insurance, the better the China’s future economic performance? These become the urgent question to be answered.In response to the above key scientific questions, by constructing a dynamic general equilibrium model and simulating with realistic and feasible parameters, it is found that although reducing the contribution rate of enterprise endowment insurance to 16% cannot change the downward trend of economic growth, it indeed increase China’s potential economic growth rate, especially in the short term. Taking into account the experience of OECD countries, further simulation shows that the above conclusions are still robust. Reducing the contribution rate of enterprise endowment insurance to 16% will increase the average economic growth rate by 0.912%, 0.132% and 0.211% between 2019-2021, 2022-2050 and 2019-2050, respectively. Meanwhile, it is not true that the lower the contribution rate of enterprise endowment insurance, the better the China’s future economic performance. There is an optimal contribution rate of 16.454%. If we reduce the contribution rate of enterprise endowment insurance, meanwhile increase the contribution rate of individual account endowment insurance, that is, from the pay-as-you-go system to the funding pension insurance system, we can not only reduce the negative impact of reducing the enterprise contribution rate on the future welfare of current working population, but also promote economic growth, especially in the long run.The contribution of this study lies in the timely and quantitative assessment of the impact of the reduction of enterprise endowment insurance contribution rate to 16% and further reduction of the contribution rate on the real potential economic growth rate in the future, which may provide a numerical basis and decision-making reference for the formulation of public policy. Compared with the previous research methods, in the model setting, a new mechanism that the impact of reducing the contribution rate of enterprise endowment insurance on economic growth is added by affecting human capital and labor productivity, this may provide an extensible theoretical framework for scholars to analyze the impact of reducing the contribution rate of enterprise endowment insurance on economic growth.