Pension Reform, Child Investment, and Household Saving in China
Job Market Paper
Abstract
Seniors may rely on savings or support from adult children. This provides an incentive for parents, when young, to invest in their children’s human capital. Pension policies, therefore, can affect young parents’ savings behavior, as well as investment in their children’s education. I study the impact of a 1997 pension reform in urban China on household savings and child investment using a difference-in-differences approach. A decrease in pension benefits leads to higher savings and investment in children of working-age households. I then estimate adult children’s transfers to their parents as a function of their education level, the number of siblings, and senior parents’ pension income. Both the number of children and the adult children’s human capital are positively correlated with transfers to senior parents. Senior parents’ pension income crowds out adult children’s transfers. That is consistent with the assumption that pensions, adult children’s supports, and savings are substitutes.
Keywords: pension reform, human capital accumulation, intergenerational transfers, household savings