Demographic Transition and Income Distribution in China: CGE Modeling with Top-Down Micro-Simulation

Demographic transition due to population aging is an emerging issue throughout the developing world, and especially in China, which has undergone demographic transition more rapidly than most industrial economies. This paper quantifies the distributional effects in the context of demographic transition using the integrated recursive dynamic computable general equilibrium (CGE) model with top-down behavioral micro-simulation. The results of the poverty and inequality index indicate that population aging has a negative impact to the reduction of poverty while it is positive as refers to the equality. Elderly rural households are experiencing the most serious poverty and inequality problems compared with other household groups and within the group inequality worsens along with the demographic transition. These findings suggest that the social pension system should be improved, especially in rural China.