Who Benefits from Public Old Age Pensions? Evidence from a Targeted Program

Given the aging of the population, policies relating to the design and reform of public pension programs are prominent in policy debates. For many developing countries, a major concern centers around the possible displacement of traditional family-based support by public programs. One challenge in estimating this displacement, or crowding out, is the endogeneity of social security benefits-the incidence and size of benefits may be correlated with unobserved determinants of private transfers, especially if benefits are means tested. Using two rich data sets, this article explores the impact of the Taiwanese Farmers' Pension Program (FPP) on recipients and their noncohabiting adult children. The FPP is targeted at elderly farmers and has relatively clean, exogenous rules for eligibility that allow the endogeneity problem to be addressed. Estimates from multiple identification strategies consistently imply that 1 dollar of pension crowds out 30-39 cents of private transfers received by the elderly. Mirroring these results, the pension also reduces the probability that the recipients' children make transfers to their parents. Further, the pension increases both the recipients' and their children's consumption, thus providing direct evidence of an improvement in the well-being of pensioners' offspring. (c) 2010 by The University of Chicago. All rights reserved..