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

Xi Chen, Yale University

In this paper, we examine whether binding credit constraint prevents household adult children from substituting their time involved in instrumental support to their parents with hired services, and therefore prevents them from migrating and living away from the hometown. We answer this question through examining whether the receipt of a permanent windfall income, the old-age pension payment, helps households overcome this constraint. Using a regression discontinuity design, this paper overcomes two challenges in the literature that households eligible for pension payment might be systematically different from ineligible households and that prior research cannot separate the effect of pension from that of age or cohort heterogeneity. Even though the pension represents only 1/4 of average income and households could anticipate receipt, regression discontinuity reveals large and significant differences in household behavior around the age of pension eligibility. Service consumption among the elderly parents booms, while transfers between grandparents and grandchildren decline.