The Impact of Public Transfers on Poverty and Inequality: Evidence from rural Vietnam

Vietnam’s extensive social security system is claimed to have played a key role in the extraordinary poverty decline over the past decades. This claim is, however, not substantiated by empirical evidence. In this study, we investigate how well contributory pensions and social allowances reached the poor and to which extent these transfers affected poverty and inequality in the early 2000s. Using fixed-effect regression to avoid endogeneity bias and allowing for different effects of different types of transfers, we find that the impact of these transfers on poverty and inequality was low, due to low coverage of poor and relatively low amounts transferred to the poor. Contrary to studies for other countries, our estimates suggest that public transfers did not crowd out private transfers nor did they result in a decrease in work effort. We do find weak evidence for multiplier effects for social transfers, but not for pensions.