Equalization Transfer Payment of Social Security: Logical Interpretation, Institutional Construction and Effect Evaluation

Abstract

The construction of China’s social security system relies on the involvement of government functions and the sharing of financial responsibilities. Social security expenditure, as one of the necessary means, needs to meet the demand for public service-oriented finances in ensuring people’s livelihoods while also evaluating the government’s expenditure pressure under limited financial capacity. Therefore, achieving equalization of basic social security becomes a necessary choice, while constructing a scientifically standardized system of equalization transfer payment standards and scheme models becomes crucial.

This paper focuses on the equalization of basic social security across regions, addressing the disparities in regional social security financing and the practical issues of transfer payments. It proposes a logical framework, standard system, and measurement model for equalized social security transfer payments. Furthermore, the paper utilizes provincial fiscal data from China spanning 2011 to 2020 to calculate the funding gaps in social security and evaluate the effects of transfer payment equalization. The research posits that the imbalance in social security revenue and expenditure constitutes an intrinsic motivation for central government transfer payments to localities, yielding several new findings: 1) Social security transfer payments are not merely simple financial transfers, because in reality, there is no strict correspondence between the gap in social security revenue and expenditure among provinces and their respective levels of economic development and fiscal revenue capacity; 2) In comparison to equalization standards, the actual amounts of social security transfer payments nationwide have received substantial support from central fiscal resources, which starkly contrasts with previous concerns regarding local social security financing; 3) The current redistribution tendencies of social security transfer payment strategies are insufficient, exacerbating imbalances in social security expenditure levels and capacities both within and between regions.

Based on these findings, the paper argues that addressing distributional issues, rather than solely focusing on fiscal capacity, should be the core task of equal transfer payments for social security. Future institutional development should adhere to the theoretical origins of fiscal transfer payments and the unique characteristics of China’s social security system while innovating various supporting mechanisms in law, finance, evaluation, and management. Compared to existing literature, the potential marginal contributions of this article are as follows: 1) It explores social security expenditures, emphasizing the institutional relationship between social security and public finance, and elaborates on the inherent logic and conditional basis of equalization transfer payments in social security. This provides theoretical guidance for the future refinement of related schemes based on different social security systems; 2) It enhances the standard system and measurement model for equalization transfer payments in social security, focusing on the scientific calculation of core indicators such as fiscal revenue and expenditure associated with social security standards and actual amounts of transfer payments under limited data conditions, while proposing feasible schemes for regular monitoring; 3) It addresses shortcomings in prior research related to inconsistent statistical criteria and insufficient detail in revenue and expenditure categories, updating a substantial amount of foundational data to present an overview of social security expenditures and their transfer payment effects, thereby providing reliable empirical evidence for relevant system development.

While the calculations may still have limitations due to constraints related to practical experience, data availability, and model specifications, the results maintain overall explanatory power based on rigorous justification of statistical criteria, model specifications, parameter substitutions, and indicator estimations. Notably, the proposed equalization scheme and its preliminary validation provide a comprehensive framework and detailed direction for accurately assessing the equalization effects of social security transfer payments in the future.