This paper studies the impact of fiscal subsidies on the sustainability of China’s rural pension system. We first provide an overview of China’s rural pension system, and explain the formulas used to calculate the pension payments. We then examine how fiscal subsidies, in the forms of basic pensions, incentive pensions, and matching subsidies, affect participation rates and individual contributions. Our study shows that the rural residents’ participation rates can be improved significantly by increasing basic pensions or by providing incentive pensions, but not by providing matching subsidies. However, none of these fiscal subsidies have significant effects on the amount of individual contributions. Overall, our results imply that the incentive pension is an effective mechanism in encouraging rural residents to participate in pension programs, but the current level of matching subsidies is not sufficient to improve participation or increase contributions. Our study suggests the needs to increase the fiscal subsides used in China’s rural pension system, and can provide useful implications in designing the effective pension system for rural residents.
This is an open access article distributed under the Creative Commons Attribution License
which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited