Population aging and China's social security reforms

China's population aging problem is more severe than other countries because of the one-child policy adopted in the early 1980s, and the current social security system is not sustainable. A two-sector overlapping generations model is developed to analyze China's social security reforms. It is shown that if the government does nothing to reform the system, maintaining the current replacement and contribution rates, social security debt will be explosive. Various reforms are considered, including adjusting the replacement rate while keeping the contribution rate constant, increasing the contribution rate while maintaining the current replacement rate, increasing the retirement age with the contribution rate being unchanged, increasing the retirement age with the replacement rate being unchanged, and switching to a fully-funded system by using government assets to pay the implicit social security debt. The effects of these reforms on capital accumulation, the output, and the welfare for each generation are simulated and compared. (C) 2015 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.