Productivity growth, increasing income inequality and social insurance: The case of China?

This paper builds a simple dynamic general equilibrium model to mimic two striking stylized facts observed in China's reform: productivity growth contributes significantly to output growth, and income inequality increases dramatically over time. Calibration exercises broadly matches the data. The economic growth rate, the aggregate productivity and income inequality increase as the coverage of the social insurance decreases. Perfect insurance is shown to be sub-optimal. With empirically plausible parameters, the level of income inequality under different degrees of social insurance can be very similar, even though their welfare implications are not. Social insurance cannot effectively reduce inequalities. © 2001 Elsevier Science B.V.