Public pension policy, substitution income, and poverty reduction: Evidence from China

This paper investigates the pension effect on poverty reduction in rural China, considering the influences of potential substitution income, including earned and transfer income from older adults and children, respectively. The study created a counterfactual group to impute potential substitution in...

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Bibliographic Details
Published in:Economic analysis and policy 2023-12, Vol.80, p.1138-1154
Main Authors: Zhan, Peng, Zhang, Anqi, Ma, Xinxin
Format: Article
Language:English
Subjects:
Income distribution
Pension
Poverty reduction
Rural China
Substitution income
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Summary:This paper investigates the pension effect on poverty reduction in rural China, considering the influences of potential substitution income, including earned and transfer income from older adults and children, respectively. The study created a counterfactual group to impute potential substitution income from the income distribution perspective. We find that when substitution income is not considered, pension effect on poverty reduction may be overestimated. Comparing the two types of substitution income, earned income is found to have a larger effect than that of transfer income from children, and it is significantly more for the middle- and high-income groups. The substitution relationship between pensions and earned income has increased in China in recent years. •To investigate the pension effects on poverty reduction.•To investigate the pension effects on income distribution.•Develop a method to calculate the imputed substitution income.•Pension effect may be overestimated when not considering substitution income.•The effect of earned income is larger than that of the transfer income in China.
ISSN:0313-5926
DOI:10.1016/j.eap.2023.09.035