Abstract: Based on the theory of endogenous growth, using Barrow's natural efficiency of financial expenditure and improved Cobb-Douglas production function, this paper calculates the optimal financial expenditure scale of basic old-age insurance for urban employees and for urban and rural residents in China. It finds that the optimal financial expenditure scale of basic old-age insurance for urban employees is 2.33%, while that for urban and rural residents is 0.81%. At present, the actual financial expenditures of both basic old-age insurance in China exceed the optimal financial expenditure scale. In order to alleviate the pressure of financial subsidies and ensure reasonable operation for basic old-age insurance, it is proposed to put the policy of transferring state-owned capital into National Social Security Fund to practice, implement basic pension national co-ordination and stimulate the enthusiasm of urban workers and urban and rural residents to pay contributions.

Key words: basic Old-Age insurance, urban employees, urban and rural residents, optimal financial expenditure scale, Cobb-Douglas production function