Public pension policy, substitution income, and poverty reduction: Evidence from China

This paper investigates the pension effect on poverty reduction in rural China, considering the influences of potential substitution income, including earned and transfer income from older adults and children, respectively. The study created a counterfactual group to impute potential substitution income from the income distribution perspective. We find that when substitution income is not considered, pension effect on poverty reduction may be overestimated. Comparing the two types of substitution income, earned income is found to have a larger effect than that of transfer income from children, and it is significantly more for the middle-and high-income groups. The substitution relationship between pensions and earned income has increased in China in recent years. (c) 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.