Rural Pension, Income Inequality and Family Transfer in China

The new scheme is motivated by concern about the widening income gap between the urban and the rural sectors, the rich and the poor in China. But it is unclear that the rural elderly will benefit by the full amount of the pension, because many currently receive private transfers from their children, and these may be adjusted after the introduction of pension benefits.

This paper uses the China Health and Retirement Longitudinal Study (CHARLS) data to investigate the net impact on the old age household income inequality when the new rural pension plan is in place. Logit and OLS analysis are used to estimate the changes of the probability and value of family transfers when other variables change. Results indicate that net private transfers are in most cases uncorrelated with household income, suggesting that the current public transfer (the new rural pension) will not crowd out private transfers. Based on these findings, Gini index simulations are employed to compare income inequality with and without rural public pension. The improvement in Gansu rural income inequality is significant while there is only slight improvement in Zhejiang. Transfers to low income regions from migrants are found to significantly improve income inequality for rural elders as well.