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

This paper builds a simple dynamic general equilibrium model to mimic two s triking stylized facts observed in China's reform: productivity growth cont ributes significantly to output growth, and income inequality increases dra matically over time. Calibration exercises broadly matches the data. The ec onomic growth rate, the aggregate productivity and income inequality increa se as the coverage of the social insurance decreases. Perfect insurance is shown to be sub-optimal. With empirically plausible parameters, the level o f 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. (C) 2001 Elsevier Science B.V. All rights reserved.