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Ageing and Society (2024), 1–19
doi:10.1017/S0144686X24000473
ARTICLE
Small cash transfers to older people: do they
reduce poverty?
Inhoe Ku1, Soohyun Kim2and Halim Yoon2
1Department of Social Welfare, Seoul National University, Gwanak-gu, Seoul, Korea and 2Department of
Public Administration and International Aairs, Syracuse University, Syracuse, NY, USA
Corresponding author: Inhoe Ku; Email: inhoeku@snu.ac.kr
Abstract
e literature has shown that, in developing countries, large cash transfers to older peo-
ple improve the wellbeing of the recipients and their families. While social pensions
have recently emerged in East Asia to deliver small cash benets to older people, there
is little consistent evidence of their eects. We examine the eects of the Basic Pension
Scheme, a social pension in South Korea, on income andconsumption poverty among older
adults. We apply a dierence-in-dierences event study design and other complementary
approaches to data covering the full period of program development from 2006 to 2021.
e results show that the social pension decreases income poverty but not consumption
poverty. While this study analysed the best data currently available, using better-quality
data in future research would enable more robust analysis. Further research is also war-
ranted to nd how to improve the eectiveness of a non-contributory pension programme
as a tool for reducing income and consumption poverty among older adults.
Keywords: cash transfer; consumption poverty; dierence-in-dierences; older people poverty; social
pension
Introduction
Since the 1990s, several wealthy Western countries have reformed their pension sys-
tems to confront the challenges triggered by population ageing. Such reforms, aimed at
relieving the public nancial burden, may have adverse implications for old-age income
security (Grech 2015; OECD 2019). In contrast, non-contributory public transfers to
older people have been gaining traction in less-developed countries. e use of gen-
eral revenue as a source of nance has been on the rise in societies with a signicant
coverage decit with respect to contributory public pensions.
Social pensions have become common among middle- and low-income countries
in Latin America, Africa and Asia since the 1990s (Robalino and Holzmann, 2009). As
a result, whether non-contributory social pension programmes reduce poverty among
older people has emerged as an important policy question. Academic research on large
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2 Inhoe ku, Soohyun Kim and Halim Yoon
cash transfers to older people in South Africa has proliferated since the pioneering
work of Case and Deaton (1998; see Ardington et al. 2009; Bertrand et al. 2003;
Duo 2003; Edmonds et al. 2005; Jensen 2004). Studies on social pensions in Latin
America, many of which provide generous benets to older people, have also emerged
(Bando et al. 2020; de Carvalho Filho 2008; Galiani et al. 2016; Juarez 2009). e liter-
ature shows that social pensions increase incomes, reduce poverty, and improve other
measures of wellbeing among older individuals and their households.
East Asia, China, Japan, South Korea and ailand have recently expanded non-
contributory benets to their older populations (Barrientos 2012; Choi and Kim 2010;
Ning et al. 2016).1is expansion is in response to the high and growing risk of old-
age poverty driven by socio-economic forces. While many countries in the region have
achieved dramatic economic growth, their public contributory pensions remain under-
developed. ese countries have also witnessed a rapid decline in multi-generational
living arrangements and traditional family-based support for older people (Chui 2007).
In contrast to the programmes oen examined in previous studies, however, most
social pensions that have emerged in this region are characterized by modest levels
of benet. ese small benets may reect productivist tendencies that prioritize eco-
nomic growth, which persist in the welfare systems of the region (Holliday 2000). In
these unique contexts, the eects of social pension programmes may dier from those
found in the literature and require further investigation. In particular, the eects of
these small benets may be dicult to detect given the volatile surroundings. However,
empirical evaluations of social pension programmes in East Asia are in the early stages
(see Chen et al. 2018 and Nikolov and Adelman 2019 for China; Gerardi and Tsai 2014
for Taiwan; Herrmann et al. 2021 for ailand; and Lee 2022, Lee et al. 2019 and Pak
2021 for South Korea).
is article aims to examine the eect of the Basic Pension Scheme (BPS), a social
pension programme that provides a small cash benet to older people, in South Korea
(hereaer Korea). Korea is at the forefront in terms of the growth of old-age poverty
and the development of related policy responses. Specically, the relative poverty rate
among older Koreans is exceptionally high at 40.4 per cent, nearly triple the average
reported by the Organisation for Economic Co-operation and Development (OECD
2023). is high old-age poverty is accompanied by an unprecedented pace of popula-
tion ageing. Korea’s old-age dependency ratio, dened as the number of older people
per 100 persons aged 15 to 64 years, is projected to become the world’s highest at
98.0 by 2060 (United Nations, Department of Economic and Social Aairs, Population
Division, 2019). On the other hand, Korea is known as a frontrunner in the devel-
opment of welfare states in East Asia (Yang and Kühner, 2020). A recent example is
the expansion of social pensions. erefore, it is worthwhile to investigate its role in
helping impoverished older adults.
We investigate whether the social pension reduces income and consumption
poverty among older people in Korea. While the BPS has undergone three major
stages in its development – namely, its introduction in 2008–2009 and two subse-
quent reforms in 2014 and 2018–2021 – most studies examine the reform in 2014
(see Lee 2022 for an exception). Empirical studies have produced mixed results. Some
nd the BPS to have a trivial eect on poverty (Lee and Kwon 2016; Park and Kim
2015; Shin and Do 2015), while others document that it mitigates poverty or improves
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Ageing & Society 3
other measures of wellbeing (Ahn et al. in press; Hawang and Lee 2022; Kang et al.
2022; Lee 2022; Lee et al. 2019; and Pak 2020,2021). ese studies have applied quasi-
experimental methods; many have adopted dierence-in-dierences approaches,
while a few have used regression discontinuity designs. Despite the inconsistent nd-
ings, no study has tested the robustness of the results across dierent empirical
strategies.
To ll this gap, this study addresses the inconsistency in the ndings present in exist-
ing studies on the impact of the BPS by oering the most comprehensive examination
over the period from 2008 to 2021 and by applying a set of dierent methodologi-
cal approaches. e main results are obtained using a dierence-in-dierences event
study (DD-ES) approach. Our event study approach, utilising quarterly data from the
Household Income and Expenditure Survey (HIES), pinpoints the policy eects at
the exact moments of policy changes and their dynamic patterns over time. We also
adopt complementary approaches, such as an instrumental-variable (IV) approach and
a regression discontinuity (RD) design, for robustness checks. Considering estimates
for dierent periods of policy change and using dierent empirical techniques, this
article reports that the social pension has the potential to reduce older people poverty.
Institutional background
Korea’s public pension system has undergone several transformations over the past
three decades. Since 1988, Korea has implemented a contributory public pension sys-
tem for ordinary citizens, referred to as the National Pension Scheme (NPS). However,
this programme falls short of furnishing sucient pension income for most older indi-
viduals. To address the limitations of the NPS, the Basic Old-Age Pension Scheme
(BOAPS) was introduced in 2008. e BOAPS oered a cash benet to the majority of
older individuals who lacked pension coverage or who received only meagre pension
amounts.2e BOAPS achieved extensive reach, covering those at the bottom 70 per
cent of the income and assets distribution among older people.3
While the BOAPS reected growing public concerns about the citizenship rights
of older individuals, it also revealed the government’s reluctance to take on a large
redistributive responsibility. Compared to the generous programmes in other countries
that are oen evaluated in the literature, the BOAPS provided a minimal cash benet
whose monthly maximum payment was set at 84,000 KRW (approximately 76 USD at
the time, given that 1 USD uctuated at approximately 1,100 KRW in the late 2000s)
for an older individual, equivalent to 5 per cent of the average monthly income of the
NPS participants in 2008. e BOAPS provided a at-rate benet for the majority of its
recipients. e benet was calculated on an individual basis (albeit reduced by 20 per
cent for couple beneciaries). A small number of recipients received reduced benets if
their disposable income aer receiving the benet was assessed to surpass the income
threshold for eligibility (see Table S1 in the online supplementary material for detailed
information on the BOAPS).
In July 2014, the BOAPS was replaced by the BPS, with an increased monthly max-
imum benet of 200,000 KRW (approximately 182 USD). A new rule was introduced
that reduced the benets for NPS beneciaries, but it aected only a limited number of
pensioners.4As a result, the vast majority of the beneciaries received the full benet
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4 Inhoe ku, Soohyun Kim and Halim Yoon
from the BPS. In September 2018, the government further raised the benet to 250,000
KRW (approximately 227 USD), eventually reaching 300,000 KRW (approximately 273
USD) from 2019 to 2021 (see Table S1 in the online supplementary material for more
details).
Despite the modest benet level, the BPS became the largest programme nanced by
the government’s general revenue in 2021, driven by the rapid growth of the country’s
older population. e number of recipients almost doubled from 2.9 million in 2008
to 5.6 million in 2020. Government expenditures increased nearly eightfold from 2.2
trillion KRW (0.19 per cent of GDP) to 16.9 trillion KRW (0.89 per cent of GDP) over
the same period. e oldest-old and women were over-represented among the bene-
ciaries. Furthermore, more than half of the beneciaries were single older recipients
(Korean Ministry of Health and Welfare 2022).
Eects of social pensions on poverty among older people
Social pensions aim to reduce poverty among older people. In particular, public income
transfers whose eligibility is largely determined by age may be eective in delivering
payments to older people with a high risk of poverty. Non-contributory benets can be
very eective in reaching a large population of poor older adults who have no or little
income from contributory pensions (Case and Deaton 1998). ey provide a signi-
cant and regular source of income until death for most older people, thereby relieving
their economic hardship. Nevertheless, there have been concerns that cash transfers
may cause unintended behavioural consequences for older recipients and their family
members, osetting their redistributive eects. For instance, public transfers, which
are oen means-tested, can impose signicant marginal tax rates on earnings that have
both income and substitution eects. However, since most social pensions rely on age
eligibility and are of an unconditional nature in practice, they are likely to have only
a pure income eect. It should be emphasised that the substitution eect involves a
deadweight loss, while the income eect may lead to an improvement in the wellbeing
of older people and their families (Kaushal 2014).
In prior research, the eect of social pensions on the labour supply is of great con-
cern, with empirical studies indicating a decrease in paid work among older adults
(Bando et al. 2020; de Carvalho Filho 2008; Galiani et al. 2016; Juarez and Pfutze
2015). In more industrialised and urbanised settings, where older people may have
more work opportunities, the work disincentive eects may be more pronounced.
Nevertheless, evidence suggests that a small benet may have a modest eect on
employment and may not encourage large-scale retirement (Kaushal 2014; Ning et al.
2016). Furthermore, the reduction in labour supply among older people driven by the
income eect may not necessarily be a concern in countries such as Korea, where a
substantial number of older adults are compelled to seek paid work for survival.
Public income transfers may also crowd out private transfers. e eects may
depend on the motives behind private transfers. Transfers motivated by altruism are
likely to be displaced by public transfers, while transfers based on exchange motives are
not (see Jensen 2004 and Juarez 2009 for a succinct review of the crowding-out eects
of public transfers). e benet level is also a crucial factor. Studies nd that public
transfers providing generous benets have substantial crowding-out eects on private
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Ageing & Society 5
transfers (Jensen 2004; Juarez 2009), while less-generous transfers have few such eects
(Chen et al. 2018; Nikolov and Adelman 2019). It should also be noted that income
transferred to older parents by a public programme leads to only partial crowding out
if the programme does not impose an additional tax burden on adult children (Nikolov
and Adelman 2019).
If a social pension constitutes a permanent increase in income, it is likely to reduce
consumption poverty. According to the life-cycle hypothesis, people spend additional
income on consumption in later life stages rather than saving it (Modigliani 1966).
Indeed, previous studies have shown that social pension programmes signicantly
increase consumption (Aguila et al. 2017; Galiani et al. 2016; Zheng and Zhong
2016) but have no signicant eects on savings among pension-eligible households
(Amuedo-Dorante et al. 2019). Nevertheless, in specic situations, particularly when
dealing with low income and inadequate savings, older individuals might hesitate
to increase their spending despite receiving public benets or opt to abstain from
expenditure to increase their precautionary savings (Lee et al. 2019). Furthermore, if
increased income from social pensions allows older adults to reduce the burden of paid
work, consumption poverty may be le unaected.
We expect the BPS to reduce poverty among older people, although its eect may
not be as strong as that of large cash transfers in some countries because its benet
is modest and covers across a larger population that includes non-poor older adults.
e small cash benet may not have signicant eects on work eorts or private
transfers. e means test for the BPS does not consider earnings of other family mem-
bers as resources. Incomes of older individuals and their spouses, including market
income and public transfer income, are counted but their labour incomes are substan-
tially deducted (for further details, see Table S1). us, the BPS is less likely to reduce
the work eorts of older adults or their family members. Moreover, the means test
does not count private transfer income and one-to-one displacement of private trans-
fers seems unlikely if older people remain impoverished even aer receiving the BPS.
Empirical studies show that the BPS has little eect on private transfer income or the
labour supply (Sung and Lee, 2018; Yi 2018; see Koh and Yang 2021 for an exception).
Research into the impact of the social pension on the economic wellbeing of older peo-
ple has produced mixed results. Earlier studies underlined that the eects of the BPS on
income and consumption are trivial and insignicant (Lee and Kwon 2016; Park and
Kim 2015; Shin and Do 2015). However, recent evidence shows an increase in income
and consumption and a reduction in poverty (Ahn et al. in press; Kang et al. 2022; Lee
2022; Lee et al. 2019).
Empirical strategy
Data
We use quarterly data from the HIES administered by Statistics Korea from
2006 to 2021. e HIES contains detailed information on income, consumption
expenditure, public pension benets, other public transfer income, private transfer
income, employment, living arrangements and other socio-economic characteristics
of individuals and their households. From 2006 onwards, the survey has become
representative of the country’s entire population by expanding its sample to include
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6 Inhoe ku, Soohyun Kim and Halim Yoon
single-person households. For most of the period under examination, information is
collected every month using a self-recorded diary but is released in datasets aggregated
on a quarterly or yearly basis.
e data for all years from 2006 to 2020 include samples of all four quarterly datasets
for each year. e 2021 data cover only the rst quarter, the latest available data at
the time of our analyses. e use of quarterly data allows us to pinpoint the exact
moments at which the BPS changed. Most of the previous studies rely on annual or
biannual surveys, ignoring the fact that programmatic changes in the BPS were oen
implemented in the middle of a calendar year. Another advantage of the HIES is that
its long time series allows us to examine all the changes in the BPS, including the
phasing-in of the BOAPS in 2008–2009. However, the HIES underwent modications
regarding its sample, interview questionnaires and data collection methods during the
examined period. Importantly, consumption data are not available between 2017 and
2018.5
e main outcomes of interest in this study are income and consumption poverty.
Income is measured as disposable income, including all sources of market income,
private transfer income and public transfer income, less tax and social contributions.
Meanwhile, consumption is measured as expenditure for a wide range of consump-
tion goods classied by the UN Classication of Individual Consumption by Purpose
(COICOP), including food, clothing and footwear; actual rent and utilities; education
and childcare; medical care; transportation; communication; recreation and culture;
housing equipment; accommodation; and miscellaneous goods and services. We use a
measure of anchored poverty, whereby individuals are dened as poor if their equiv-
alised income or consumption is below a xed poverty threshold over the examined
period. Here, the poverty threshold is set at 50 per cent of the national median in 2006.
us, we classify individuals as poor if their income or consumption in each year is
below the xed poverty threshold. By using the anchored poverty line, we can focus
on changes in living standards among older people driven by policy reforms, eliminat-
ing the inuence of changes in the national median income or consumption, which are
largely determined by economic conditions among the working-age population, on the
trend in old-age poverty. On the other hand, the anchored poverty line does not reect
the improvement in living standards over time, and analyses based on the anchored
line are likely to produce results of the eects on extreme poverty in later years. We
check the robustness of our ndings using the relative poverty line.
Identification
Evaluating the eects of social pension programmes is a considerable challenge.
Crucially, the decision to take up programme benets is endogenous and may be corre-
lated with the outcome of interest. Some people may more actively seek the benet and
may systematically dier in observed and unobserved characteristics from other peo-
ple who may not. Furthermore, for the social pension in Korea, individuals are selected
based on their level of nancial resources, leading some individuals to change their
income or asset levels to obtain eligibility. us, the comparison of outcomes for recip-
ients and non-recipients may confound a programme’s causal eect with dierences in
observed and unobserved individual characteristics.
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Ageing & Society 7
e best approach to eliminate this selection bias would be a randomised controlled
trial. Given that randomisation is rarely implemented, however, many studies on social
pensions exploit naturally occurring exogenous variation in programme eligibility with
respect to age or other target criteria outside an individual’s inuence. Our main analy-
sis is based on a dierence-in-dierences (DD) approach and relies on the age eligibility
rule to dene the treatment and control groups. Specically, the treatment group con-
sists of individuals aged 65 and over, while the control group comprises individuals
aged between 55 and 64.6We also apply IV techniques and RD designs for robustness
checks. We evaluate three rounds of programme change over the examined period: the
phasing-in of the BOAPS in 2008–2009, the replacement of the BOAPS by the BPS in
2014 and the increase in benets of the BPS in 2018–2021.
e DD analyses estimate the treatment eects by interacting the treatment indica-
tor with period dummies representing the time aer a policy change. Our DD approach
employs an event study specication to examine changes in outcomes at the moment
of a policy change. is helps us to check the parallel trend assumptions in pre-reform
periods and to examine the dynamic eects of policy reforms. Based on the quarterly
data, we estimate the following model separately for each reform:
Yit =∑
j
𝛼j⋅Quarterj=t+ 𝛽 ⋅ Treati+∑
j≠−1
𝛾j⋅Quarterj=t⋅Treati+Xit Φ + 𝜀it (1)
where Yit indicates the poverty status of individual iin quarter t. e right-hand side
includes a full set of dummies for event time (all quarters in the pre- and post-reform
years under examination), a treatment dummy for individuals aged 65 and over, and
the interaction between the event time dummies and the treatment dummy. We use the
quarter just before the policy change (indexed as −1) as a reference and index all other
quarters relative to that quarter. By omitting the reference quarter, 𝛾jcan be interpreted
as the eect of the policy change in quarter trelative to the pre-reform quarter for
the treatment group. We use data spanning eight quarters prior to and following each
policy reform for the rst two reforms in 2008–2009 and 2014. However, for the third
policy reform in 2018–2021, data for only a single quarter before the treatment are
accessible and utilised.
Covariates Xit include age, age squared, sex and education of the household head,
receipt of public pension benets, and year- and quarter-xed eect terms. Age and
age squared control for common age eects on the outcomes. We include the receipt
of benets from contributory public pensions, which may aect income among the
treatment and control groups dierently over time because of the maturation of the
NPS and changes in the pension eligibility age over the examined period, as will be
discussed later in Table 1.7Year- and quarter-xed eect terms are included to control
yearly and seasonal uctuations in poverty rates.
We estimate linear probability models for income and consumption poverty, and
standard errors are clustered at the household level to take into account autocorrela-
tion within a household in the quarterly data. Later, we conduct tests of the parallel
trend assumption. Specically, we estimate the models additionally including group-
specic linear trend terms to determine whether the estimated eect can be explained
by extrapolating dierential trends between the two groups (Acemoglu and Angrist
2001).
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8 Inhoe ku, Soohyun Kim and Halim Yoon
Results from the descriptive analysis
Table 1 describes the characteristics of older people in the treatment and control groups
in the sample. e number of individuals in the sample ranges from almost 10,800
in 2007 to approximately 20,600 in 2019. e share of those aged 65 and older, who
belong to the treatment group, is greater than that of the control group, who are aged
55 and older each year. Meanwhile, the share of the benet recipients among the treat-
ment group was 63 per cent in 2011, 70 per cent in 2015 and 71 per cent in 2019. is
may indicate some under-reporting of the received benet in the survey data in the
early years of the BPS’s implementation. In fact, the share of recipients has remained
close to 70 per cent from 2009 onwards, according to a government administrative
record (Korean Ministry of Health and Welfare 2022).8e average benet amount
substantially increased over the period.
In recent years, the sample shows a growing representation of individuals aged
75 and older, mirroring the trend of increased longevity among the population in
Korea. Meanwhile, the treatment group contains higher proportions of women and
less-educated people.9e trend in the receipt of contributory public pension benets
diverges for the treatment and control groups. In particular, the number of recipients
increased from 34 per cent in 2007 to 55 per cent in 2019 in the treatment group. e
treatment group also shows a rather steep increase in the average amount of public pen-
sion benets since 2011. In contrast, the pension income of the control group started to
stagnate around 2013 and even more so from 2018 onwards, mainly due to the increases
in the pension eligibility age in the NPS (see Table 1). Following the 2007 NPS reform,
which scheduled the pension eligibility age to increase incrementally to 65 by 2033, the
eligibility age rose from 60 to 61 in 2013 and from 61 to 62 in 2018. is underscores
the importance of taking into account the receipt of benets from the contributory
public pension in the analysis of the impacts of the BPS.
Figure 1 shows quarterly trends in the benet amount from the BPS and the income
and consumption poverty rates for the treatment and control groups from 2006 to 2021.
e vertical dashed lines indicate the quarters when the BOAPS was phased in (starting
from the rst quarter of 2008 through the third quarter of 2008 to the rst quarter of
2009); when the BOAPS was replaced by the BPS, with a benet increase in the third
quarter of 2014; and when the benet increased to 250,000 KRW in the fourth quarter
of 2018 and to 300,000 KRW from the second quarter of 2019 to the rst quarter of
2021.
In the rst graph, the quarterly trend in the average amount of the BPS benet is
illustrated for the treatment and control groups. Although the BOAPS was introduced
in 2008, the amount is not shown for that year in the graph because information on
the BOAPS benet was not collected in the 2008 survey. Meanwhile, for the treatment
group, the benet amount was reported to be less than 50,000 KRW in the rst quarter
of 2009, aer which it climbed, suggesting that respondents did not fully report the
BOAPS benet until late 2009. In the third quarter of 2014, the benet amount more
than doubled, rising from approximately 60,000 KRW to 130,000 KRW, while it again
substantially increased between late 2018 and early 2021.
e second graph illustrates that income poverty rates among older people (the
treatment group) declined from 46.9 per cent in the rst quarter of 2006 to 16.7 per
cent in the rst quarter of 2021. e dierence in income poverty rates between the
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Ageing & Society 9
Table 1. Sample characteristics (unit: %, thousand KRW)
2007 2011 2015 2019
Treat Control Treat Control Treat Control Treat Control
BP beneficiary 0.0 0.0 62.65 0.71 69.66 0.65 71.03 0.29
BP benefit amount 0.0 0.0 58.11 0.42 135.78 0.66 176.10 0.34
Age
55–64 48.44 43.52 40.86 46.93
65–74 38.01 37.72 37.05 30.87
75+13.55 18.76 22.09 22.20
Gender
Female 53.12 43.95 59.60 50.58 60.5 49.55 56.64 47.02
Education
Less than 12 yrs 75.88 58.32 75.48 54.85 70.29 44.04 66.79 29.08
PP beneficiary 34.03 31.00 36.88 37.54 50.98 28.04 54.79 22.95
PP benefit amount 181.12 174.83 177.93 185.54 258.10 195.39 307.15 188.41
N 10,833 15,179 18,489 20,614
% 51.6 48.4 56.5 43.5 59.1 40.9 53.1 46.9
Notes: 1. ‘Treat’indicates the sample of individuals aged 65 and over, while ‘Control’ indicatesthe sample of individuals aged 55–64 in households without members aged 65 and older. 2. ‘Beneficiary’
indicates that members of the household receivedthe basic pension benefit. 3. The abbreviation ‘BP’ indicates the basic pension, while ‘PP’ indicates a public pension, including the NPS. 4. Monetary
values are expressed in thousand KRW converted to 2006 values.
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10 Inhoe ku, Soohyun Kim and Halim Yoon
Figure 1. Trends in basic pension benefit and poverty rate, 2006–2020: (a) basic pension benefit
(unit: 100,000 KRW); (b) income poverty rate; (c) consumption poverty rate.
two groups diminished over the examined period, mainly due to discontinuous drops
for the treatment group aer each of the three BPS changes in 2008–2009, 2014 and
2018–2021.10 e third panel shows that consumption poverty rates decreased from
33.4 per cent in the rst quarter of 2006 to 12.3 per cent in the rst quarter of 2021.
e overall trend in consumption poverty rates suggests a convergence between the two
groups similar to the trend in income poverty rates. Note that consumption poverty
rates are not shown for 2017 and 2018 because relevant data are not available in the
survey (see note 5 for more details). We nd declines in consumption poverty in
2008–2009 and 2019–2021 for the treatment group.
Recall that the second and third graphs are based on the anchored poverty line. If
we adopt a relative poverty line, the poverty rate in the rst quarter of 2021 is 31.3
per cent, instead of 16.7 per cent, for income poverty and 18.3 per cent, instead of
12.3 per cent, for consumption poverty. (e results are not shown in the gure.) e
dierences in poverty rates indicate that a large portion of the change in poverty rates
over the period can be attributed to the substantial rise in the national median due to
economic growth. While we use the anchored poverty line to focus on the eects of the
BPS, it should be noted that these poverty measures do not adequately reect changes
in living standards over the 15 years.
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Ageing & Society 11
Figure 2. The DD-ES estimates of the eects of the basic pension scheme on poverty: (a) phasing-in in
2008–2009; (b) benefit increase in 2014; (c) benefit increase in 2019–2021.
Results from the main analyses
Figure 2 displays our DD-ES estimates of the eects of the BPS on income and con-
sumption poverty rates while controlling for individual and household characteristics.
First, we assess the eects of the phasing-in of the BOAPS in 2008–2009. In panel
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12 Inhoe ku, Soohyun Kim and Halim Yoon
(A), the graphs illustrate the coecients for the interaction terms between a treatment
indicator and quarter dummies with 95 per cent condence intervals in red circles.
e reference point is the fourth quarter of 2007, before the BOAPS was introduced in
2008. e condence intervals in every quarter in 2006 and 2007 include zero, while
the graphs show no specic trend, implying that the assumption of parallel trends in the
poverty rates for the treatment and comparison groups is not violated. e coecients
for the post-treatment eight quarters in 2008 and 2009 show a generally downward
trend for the rst ve quarters in the phase-in period and become signicantly negative
for most quarters in 2009 for both income and consumption poverty rates, indicating
that the BOAPS reduced poverty. e quarters in 2008 seem to constitute a transition
period, during which the BOAPS was only partially in eect. e sizes of the eects are
larger than 5 percentage points for the quarters in 2009. e income and consumption
poverty rates continue to drop until the last quarter of 2009.
In panel (B), we select the second quarter of 2014 as the base period to evaluate
the eects of the BPS reform in July 2014. All the coecients for post-reform quar-
ters have a negative sign. For income poverty, the coecient for the fourth quarter
of 2014 is statistically signicant at the 5 per cent level, while for the second quarter
of 2015 it is marginally signicant at the 10 per cent level. For consumption poverty,
four coecients are statistically signicant, while two others are marginally signi-
cant (see Table 2, where the same estimates as illustrated in the graphs are provided
in the rst and third columns). Although inconclusive, the results show that the BPS
potentially reduces poverty.
However, the evolution of poverty rates in the pre-2014 reform period suggests
that the parallel trend assumption may not be satised. For income poverty, all the
coecients for the pre-treatment quarters imply a downward trend before the reform.
Moreover, in the model of consumption poverty, the coecients are oen signicantly
dierent from zero during the pre-treatment period. We report estimates of the mod-
els with a group-specic linear trend term added in the second and fourth columns
in Table 2. For income poverty, there is no evidence that the parallel trend assumption
is violated. e group-specic linear trend (the coecient for the interaction between
the group dummy and the linear trend term) is not signicantly dierent from zero. In
contrast, for consumption poverty, the group-specic linear trend is statistically signif-
icant, revealing a dierential trend between the two groups. However, the coecients
for the post-treatment period remain similar or increase in absolute size, suggesting an
even stronger eect of the BPS aer considering the dierential trend. We conduct the
same analyses for the phase-in of the BPS in 2008–2009 and nd that the coecients
for the group-specic linear trend term are not signicant (see Table S2 in the online
supplementary material for the results).
Referring back to Figure 2, in panel (C) we partly examine the reform in 2018–2021
because of the interruption of the data series in 2017–2018. We cannot investigate the
eects of the benet increase to 250,000 KRWin September 2018. In addition, it should
be noted that the increase in benets was very modest and gradual for most quarters
in 2019–2021. e benet rose to 300,000 KRW for those in the bottom 20 per cent
in the joint income and asset distribution among older people in April 2019, for those
between the 20th and 40th percentiles in January 2020 and for the remaining recipients
in January 2021. erefore, our DD-ES estimation cannot capture the full eects of the
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Ageing & Society 13
Table 2. DD-ES estimates of the eects of the basic pension reform in 2014
Income poverty Consumption poverty
(1) (2) (3) (4)
Group 0.015 (0.017) 0.040*** (0.014) 0.029** (0.014) −0.028** (0.011)
Group × 2012q3 0.030 (0.023) −0.045**(0.019)
Group × 2012q4 0.009 (0.022) −0.052***(0.018)
Group × 2013q1 0.005 (0.023) −0.051***(0.018)
Group × 2013q2 0.023 (0.022) −0.015(0.019)
Group × 2013q3 0.022 (0.022) −0.028(0.018)
Group × 2013q4 −0.002 (0.022) −0.051***(0.018)
Group × 2014q1 0.002 (0.023) −0.023(0.018)
Group × 2014q3 −0.027 (0.022) −0.023 (0.020) −0.025(0.018) −0.015 (0.016)
Group × 2014q4 −0.045**(0.021) −0.039*(0.020) −0.036**(0.017) −0.032*(0.017)
Group × 2015q1 −0.029 (0.022) −0.020 (0.022) −0.043**(0.017) −0.044** (0.018)
Group × 2015q2 −0.040*(0.021) −0.027 (0.024) −0.031*(0.018) −0.038*(0.020)
Group × 2015q3 −0.035 (0.021) −0.019 (0.026) −0.045**(0.018) −0.057*** (0.021)
Group × 2015q4 −0.033 (0.021) −0.014 (0.027) −0.064***(0.017) −0.082*** (0.023)
Group × 2016q1 −0.031 (0.022) −0.009 (0.030) −0.033*(0.017) −0.056** (0.024)
Group × 2016q2 −0.020(0.021) 0.005 (0.032) −0.013(0.018) −0.041 (0.026)
Group × linear trend −0.003(0.002) 0.005*** (0.002)
N 77,480 77,480 77,480 77,480
Notes: Year-fixedeects, quarter-fixed eects, sex, age, age squared, education and receipt of public pension benefits are
also included in all the models.
Significance levels: *p<0.10, **p<0.05, ***p<0.01.
reform in 2018–2021. In fact, we do not nd signicant eects for most quarters in
2019–2021.11
e DD-ES results show that the social pension has the potential to reduce income
and consumption poverty at least in the rst two reforms, for which enough data are
available to allow us to fully examine the eects. For the policy change in 2008–2009,
the eects on income and consumption poverty are generally greater than 5 percentage
points. e eects of the change in 2014 are mostly smaller than 5 percentage points.
On the other hand, the eects of the change in 2019–2021 are mostly close to zero. e
dierences in the eect sizes are understandable given that the benet increases in the
rst two changes are of similar sizes (approximately 100 USD), while the increase in
the third is much smaller (less than 50 USD until 2021). Notably, the anchored poverty
line we use in these analyses is less likely to reect the improvement in living standards
over time. us, our ndings may represent the eects of the BPS on extreme poverty
for later years in the examined period. To check the robustness of the ndings, we re-
estimate the same models using the relative poverty line. e analyses produce results
qualitatively similar to those illustrated in Figure 2, suggesting that our ndings are not
limited to extreme poverty (see Figure S1 in the online supplementary material for the
results).
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14 Inhoe ku, Soohyun Kim and Halim Yoon
Robustness checks
We adopt two additional methods to check the robustness of our ndings from the
DD estimation. One deciency in the DD approach is that it relies solely on an age-
related eligibility criterion, ignoring the fact that only 70 per cent of age-eligible older
people who meet the means test receive the BPS pension. us, these estimates may
represent the eect on the total population of older people, including those who were
never aected by the BPS due to their higher income. To capture the eect of the BPS
reform on those aected, we apply an IV strategy. Since the programme changes in the
BPS entailed an increase in the benet rather than an expansion of the coverage, the
amount of BPS benet received is instrumented by the programme changes in the BPS
(interactions between a treatment indicator and quarter dummies). In our two-stage
least squares (2SLS) estimation, we rst model the eects of the change in the BPS on
the benet received and then use the predicted benet to estimate the eects of the
change on poverty outcomes. Coecients for the interaction terms show the eects of
the BPS reform in the quarter relative to the second quarter of 2014, acting as a base
quarter, as in the DD estimation. We conduct a 2SLS estimation for the 2014 reform
because the HIES does not collect information on the benet received in 2008; nor
does it provide consumption data from 2017 to 2018.
e results from the rst-stage estimation show that the BPS reform increased the
benet amount received by approximately 60,000 KRW to 80,000 KRW between the
third quarter of 2014 and the second quarter of 2016. is is consistent with the fact that
the benet increase of 100,000 KRW aected only 70 per cent of older people. e IV
estimate for income poverty indicates that a 100,000 KRW increase in the BPS benet
reduces the income poverty rate by 5.8 percentage points, which is greater than the
reduced-form DD estimates reported in Table 2. For consumption poverty, however,
the IV estimate (−0.005) is close to zero, suggesting that increased income due to the
BPS reform has virtually no eect on consumption poverty (see Table S3 in the online
supplementary material for the results).
Second, we address another deciency in the DD approach by adopting an RD
design. e DD method examines the dierences in poverty rates between those aged
65 and over (treatment group) and those aged between 55 and 64 (control group). Since
each group consists of individuals in broad age ranges, the group dierences may be
susceptible to changes other than the BPS reforms aecting people whose ages are not
in the neighbourhood around the age threshold of 65 for the BPS. For example, the
mandatory retirement age for most civilian workers was extended to 60 and over by
law since 2016. In addition, the eligibility age for the contributory public pension was
60 until 2012, and it rose to 61 in 2013 and then to 62 in 2018. ese changes may have
inuenced poverty rates among the control group, biasing the DD estimates.
e RD estimates based on observations close to the age threshold may provide
more credible estimates (Cattaneo et al. 2020). We conduct RD analyses for the years
2009, 2015 and 2019 to examine the eects of the BPS aer each of the three major pro-
gramme changes. We select the year 2019 for the reform from 2018 to 2021 because
this was the most recent year before the Covid-19 pandemic broke out. Like Edmonds
(2006), we relate poverty rates to the age of individuals with a quadratic function, esti-
mated separately above and below the cut-o. We attribute any discontinuous change
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Ageing & Society 15
in poverty rates at the age threshold of 65 to the contribution of the BPS, assuming that
poverty rates vary continuously according to age.
Since we are interested in the eect of the programme incorporating all three major
changes, our exposition focuses on the results for the year 2019 (see Table S4 in the
online supplementary material for all the RD results, including the years 2009 and
2015). While the coecient estimated using the sample broadly covering individuals
aged between 55 and 74 is positive and close to zero, the coecients become negative
and large as we narrow the age range of the samples. Our preferred estimates from
the sample covering those between 62 and 67 years suggest that the BPS decreased
the income poverty rate by 8.1 percentage points and the consumption poverty rate by
3.5 percentage points, although neither reduction is statistically signicant.12 For other
years, most RD estimates based on those between 62 and 67 years have the expected
signs. Notably, results for 2015 show that the BPS reduced the income poverty rate by
18.2 percentage points and the eect is statistically signicant. Our examination indi-
cates that work and business incomes were irregularly larger for those aged between 65
and 67 in the year, leading to an upwardly biased estimate of the eect.
Conclusion
Unlike the literature highlighting consistently favourable eects of social pensions,
studies of the corresponding programme in Korea have produced mixed results; some
studies have shown trivial eects on poverty, while others have reported signicant
poverty-reducing eects. e inconsistent ndings may be due to the diculty of
detecting the eects of the programme’s small benet. Limitations in the data and
methods used in previous studies may further aggravate the situation. To overcome
these limitations, we comprehensively examined all the policy changes over a long
period using multiple empirical methods.
Overall, the results show that the social pension has the potential to reduce
income poverty, but the evidence does not consistently support the existence of
favourable eects on consumption poverty. e DD-ES estimates for the BPS changes
in 2008–2009 and 2014, for which data are fully available, generally show that the
social pension has non-trivial eects on the reduction in income and consumption
poverty, although these eects are not always statistically signicant. e results from
our preferred RD models suggest potentially benecial eects for income poverty but
not consumption poverty, which is also conrmed by the IV approach. Our ndings
are in line with recent studies that found a reduction in income poverty (Lee 2022; Lee
et al. 2019). Other studies document improvements in consumption, material depriva-
tion and other measures of wellbeing (Ahn et al. in press; Hawang and Lee 2022; Kang
et al. 2022; and Pak 2020,2021).
Some scholars have argued that the eectiveness of social pensions in improving
income poverty among older adults might be compromised by crowding out other
sources of income, such as work income or private transfers (Juarez 2009; Juarez and
Pfutze 2015). Our nding of favourable eects on income poverty suggests that the
potential decrease in other income sources may not be substantial in a society where
old-age poverty is prevalent. Even if the crowding-out eects are non-trivial, these
eects may not be undesirable from a policy perspective. Social pensions may reduce
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16 Inhoe ku, Soohyun Kim and Halim Yoon
the negative eects of continued work on the health of older people and lessen the
burden of nancial responsibility on adult children who are themselves experiencing
nancial diculty.
Considering our nding of little eect on consumption poverty, we speculate that
the social pension benet may not have reached the level needed to reduce con-
sumption poverty, while it does bring improvement in other measures of wellbeing.
Consumption among older people may not be responsive to the modest benet of the
social pension. Poor older Koreans may choose to be extremely frugal and save their
increased income in anticipation of adverse events, such as serious medical conditions.
In conclusion, this study shows that the social pension has the potential to reduce
income poverty, but its impact on reducing consumption poverty is not substantiated.
While this study analysed the best data currently available, using better-quality data in
future research would enable more robust analysis. Further research is also warranted
to nd how to improve the eectiveness of a non-contributory pension programme as
a tool for reducing income and consumption poverty among older adults.
Supplementary material. e supplementary material for this article can be found at https://doi.org/10.
1017/S0144686X24000473.
Acknowledgements. e authors would like to extend sincere gratitude to the two anonymous reviewers
for their valuable feedback and insightful comments, which greatly contributed to improving this article.
Additionally, the authors are grateful to the audience at the East Asian Social Policy Research Network 2023
for their constructive comments and stimulating discussions.
Author contributions. All the authors have made substantial contributions to the conception and design
or analysis and interpretation of the data and to the draing and approval of this article.
Financial support. None reported.
Competing interests. e authors declare no competing interests.
Ethical standards. We used secondary data, therefore ethical approval was not needed.
Notes
1. Japan has social pension schemes for housewives and low-income older people, both of whom are exempt
from paying contributions, along with a contributory basic pension programme (Barrientos 2012). In China,
a social pension, introduced as a voluntary contribution-based programme, provides benets that are heavily
funded by the government (Liu and Sun 2016).
2. Social pension in Korea refers to the BPS and its predecessor, the BOAPS. In this study, we oen use the
BPS as a general term for the Korean social pension scheme inclusive of the BOAPS.
3. Eligibility was extended to those who belonged to the lower 60 per cent in the joint distribution of income
and assets among people aged 70 and over in January 2008. Eligibility was then expanded to those in the
bottom 60 per cent among older people, including those aged between 65 and 69, in July 2008. By the begin-
ning of 2009, the programme was fully phased in by expanding the coverage to older people aged 65 and
older in the lower 70 per cent in the distribution.
4. For example, regular earnings up to 480,000 KRW per month and 30 per cent of additional earnings were
not counted as income as of 2014, a generous allowance that may have reduced potential disincentive eects
on work eorts. For NPS pensioners with a benet greater than 150 per cent of the BPS maximum benet,
the BPS benet was set to gradually decrease to half of the maximum benet (see Table S1 for more details).
5. In 2016, Statistics Korea decided to continue an annual expenditure survey in the HIES but terminate its
ongoing income survey component. en, the previous decision was reversed in 2018. In the meantime, the
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Ageing & Society 17
expenditure survey underwent a radical change when its quarterly data series was interrupted in 2017 and
2018. Statistics Korea has provided a new data series starting in 2019 based on a newly constructed sample
that is otherwise similar to the original data series until 2016.
6. Some of those aged between 55 and 64 live in households with eligible older individuals. We eliminate
these individuals from the control group. To include them in the control group would dilute the treatment
eect since, as spouses of eligible older individuals or other household members, they share the BPS benet.
7. Other social assistance programmes oen changed concurrently with the BPS reforms over the examined
period, as discussed. We explored whether adding a control variable for receiving other transfers changed
the model results, and the results were unchanged. us, we do not include the variable in the models.
8. ere cannot be a beneciary in the control group by denition. However, fewer than 1 per cent of the
control group members report a positive amount of benet received since the introduction of the BOAPS,
probably due to measurement error.
9. However, the sample in 2019 shows a pattern that diverges from the trend in age and gender composition
between 2007 and 2015. e sample includes more individuals in the youngest (55–64) age group and fewer
women than the sample in 2011 or 2015 does. e dierent patterns may have emerged due to signicant
changes in the sample of the HIES since 2017.
10. e poverty rate also decreased precipitously for the treatment group in the second quarter of 2020, when
stimulus checks were distributed in response to the Covid-19 pandemic.
11. e signicant eect on income poverty in the second quarter of 2020 may reect the distribution of
stimulus checks during the pandemic.
12. e RD estimates represent the eects on young older adults, many of whom are not eligible for the BPS.
Recall that the BPS is a means-tested programme. Because incomes and assets decline as people age, the
share of the BPS beneciaries among those aged 65 is approximately 50 per cent or less, while it is almost 80
per cent among those aged between 80 and 84.
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Cite this article: Ku I, Kim S and Yoon H (2024) Small cash transfers to olderp eople:do t hey reducepoverty?.
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