Heterogeneous Effects of a Means-Tested Benefit on Income of Older Adults: Evidence from the Basic (Old-Age) Pension in South Korea

Abstract

In response to severe old-age poverty in South Korea, the Basic Pension has been operated since 2008 for 70% of low-income older adults as a means-tested benefit. It has become an important income supplement for them; however, its expenditure has sharply increased due to rapid population aging. This study analyzed the Korea Household Income and Expenditure Survey using changes-in-changes to examine heterogeneous effects at different income deciles among its development phases in 2008, 2014, 2018, and 2019–2021. First, the largest benefit increase in 2014 records greater income support effects. Second, in terms of heterogeneous effects, the bottom 10th percentile has insignificant effects in 2018 compared to 2014 because it can select another means-tested programme for general citizens, which provides more extensive benefits since 2015. The 20th–50th percentiles presented significant income increase effects. Although the benefits are distributed for the 60th–70th percentiles, who are positioned above the poverty threshold, they consistently displayed insignificant effects. Practically, obtaining a sufficient increase effect like in 2014 may be difficult considering population aging and massive budget pressure. Therefore, it is necessary to collaborate with other social service programmes and concentrate on vulnerable population to provide sustainable welfare services.