Does the New Rural Pension Scheme crowd out private transfers from children to parents? Empirical evidence from China

Purpose - The purpose of this paper is to examine the effect of New Rural Pension Scheme (NRPS) on the private transfer behavior of the non-co-resident adult children to their elderly parents in rural China, and hence address the income redistribution effectiveness of public program for the elderly in rural China. Design/methodology/approach - Pooled data from two waves of the China Health and Retirement Longitudinal Study and the combination of regression discontinuity design and difference in difference method are used to perform the analysis. Findings - No evidence is found that pension payment from NRPS program does significantly crowd out the economic support from the adult children to their elder parents. The heterogeneous effects at different income percentile indicate that pension payment significantly increases the probability of receiving gross transfers and likelihood of the net transfer being positive for those elderly individuals with low income; in particular, the distinctive “family binding” arrangement may dramatically contribute to increasing the probability of receiving private transfers for the pension recipients. Originality/value - The empirical findings would have far-reaching implications for the efficacy of public transfer or re-distributive programs such as NRPS; for the rural elderly, in particular, the unique “family binding” mechanism under the NRPS program may have positive welfare effects on the intended beneficiaries. Furthermore, an understanding of the inter-linkage between informal arrangements of elderly support and social re-distributive program provides further insight into the design of social security systems targeted to the vulnerable group in developing countries.