Are children and pension substitutes? Evidence from the new rural pension scheme in China

The study examines whether children, widely recognized as an important source of old-age security in many societies, reduce people’s demand for a social pension programme in rural China–the New Rural Pension Scheme (NRPS). OLS results suggest that having one more child will lower the NRPS participation rate by 3.0 percentage points and the effect of an additional son is larger than the effect of an additional daughter. However, using fines on unauthorized births under the One Child Policy in China as the instrument of children quantity, I find that the number of children has no causal effect on NRPS participation. Heterogeneity analysis shows that, when all children are adults, the number of children will increase the annual NRPS contribution. These findings suggest that old-age support based on family networks does not necessarily impede the development of formal pension programmes.