The effect of social pension on consumption among older adults in Korea

Abstract

Focusing on the Korean case of social pensions, we evaluated the extent to which the basic pension scheme (BPS), a means-tested public assistance program, affects consumption. Data came from two years (2013 and 2015) of the Korea Welfare Panel Study (KoWePS) (N = 3615 households). Applying the Propensity Score Matching (PSM), Difference in Difference (DiD), and triple difference (DDD) approach, we used linear regression models with the fixed-effect model to estimate the effects of BPS. We found a significant increase in the expenditure ratio in absolute and relative poverty levels and total expenditure. BPS led to increased spending on essential living items (food, clothing) and health care, but not leisure. The results also supported that the social pension positively affects spending among the more disadvantaged population as the beneficial effects were more prominent among those living alone than those living with other household members. However, we did not find a significant effect among the poor, likely because the Korean policies reduce the benefits obtained from other public assistance programs if the poor old adult receives BPS benefits. Our findings provide useful insights for economies that encounter challenges associated with rapid population aging.