Household Decision Making under the New Rural Pension Scheme in China: A Regression Discontinuity Design

China launched a pension program for rural residents in 2009, now covering several hundred million Chinese. This program offers a unique setting for studying the ageing population, given the rapidity of China’s population ageing, traditions of filial piety and co-residence, decreasing number of children, and dearth of formal social security, at a relatively low income level. This paper examines whether credit constraint prevents adult children from substituting their time involved in instrumental support to their parents with hired services, and therefore prevents them from more occupational choices or migration. We answer this question through examining whether the receipt of a permanent windfall income, the old-age pension payment, helps households overcome this constraint. Employing a regression discontinuity design to a primary longitudinal survey in rural Guizhou province, this paper overcomes challenges in the literature that households eligible for pension payment might be systematically different from ineligible households and that it is difficult to separate the effect of pension from that of age or cohort heterogeneity. Around the pension eligibility age cut-off, results reveal large and significant increase in off-farm work and migration among adult children and service consumption among elderly parents, as well as reduction in intergenerational transfers and co-residence of the extended family.