Do Private Household Transfers to the Elderly Respond to Public Pension Benefits? Evidence from Rural China

TL;DR

This study investigates how public pension benefits influence private household transfers to the elderly in rural China, revealing a small crowd-out effect and highlighting the interaction between public and private support systems.

Contribution

It provides the first empirical evidence from a developing country showing pension benefits reduce private transfers, with a novel difference-in-difference-in-differences approach.

Findings

Pension benefits decrease the likelihood of receiving transfers from adult children.

Small crowd-out effect of pension benefits on private transfers.

Estimates of crowd-out are smaller than those in high-income countries.

Abstract

Ageing populations in developing countries have spurred the introduction of public pension programs to preserve the standard of living for the elderly. The often-overlooked mechanism of intergenerational transfers, however, can dampen these intended policy effects as adult children who make income contributions to their parents could adjust their behavior to changes in their parents' income. Exploiting a unique policy intervention in China, we examine using a difference-in-difference-in-differences (DDD) approach how a new pension program impacts inter vivos transfers. We show that pension benefits lower the propensity of receiving transfers from adult children in the context of a large middle-income country and we also estimate a small crowd-out effect. Taken together, these estimates fit the pattern of previous research in high-income countries, although our estimates of the crowd-out effect are significantly smaller than previous studies in both high-income and middle-income countries.