The heterogeneous impact of pension income on elderly living arrangements: evidence from China’s new rural pension scheme

Abstract

This paper investigates the impact of pension income on living arrangements of the elderly. Taking advantage of a unique opportunity due to the recent establishment and expansion of the New Rural Pension Scheme in China, we explicitly address the endogeneity of pension status and pension income through a fixed-effect model with instrumental variable approach by exploiting exogenous time variation in the program implementation at county level. We find an overall positive effect of pension income on independent living as well as considerable heterogeneity. The positive income effects of the NRPS are concentrated among the elderly with adult children living nearby, of higher socio-economic status, and with better health at baseline; for other groups, the effects are insignificant. We also find that more generous programs exhibit larger effects. Our results highlight that living arrangement is multidimensional in rural China.