Elliott Fan

Who benefits from public old age pensions? Evidence from a targeted program

Given the aging of the population, policies relating to the design and reform of public pension programs are prominent in policy debates. For many developing countries, a major concern centers around the possible displacement of traditional family‐based support by public programs. One challenge in estimating this displacement, or crowding out, is the endogeneity of social security benefits—the incidence and size of benefits may be correlated with unobserved determinants of private transfers, especially if benefits are means tested. Using two rich data sets, this article explores the impact of the Taiwanese Farmers’ Pension Program (FPP) on recipients and their noncohabiting adult children. The FPP is targeted at elderly farmers and has relatively clean, exogenous rules for eligibility that allow the endogeneity problem to be addressed. Estimates from multiple identification strategies consistently imply that 1 dollar of pension crowds out 30–39 cents of private transfers received by the elderly. Mirroring these results, the pension also reduces the probability that the recipients’ children make transfers to their parents. Further, the pension increases both the recipients’ and their children’s consumption, thus providing direct evidence of an improvement in the well‐being of pensioners’ offspring.

Women Rule: Preferences and Fertility in Australian Households

Abstract Using a unique dataset from Australia, we investigate how individual fertility preferences translate into fertility realizations. We find consistent evidence that the wife’s preference is more important than the husband’s preference in predicting subsequent births, no matter whether her initial fertility desire is higher or lower than that of her partner. We also explore the effects of the introduction of the non-means-tested Baby Bonus introduced in 2004 by testing whether the hypothesis that the cash transfers from the scheme increase the bargaining power of the partner with higher fertility desire, thus leading to an increase in fertility for couples with disagreement on fertility plans. Our findings do not support this hypothesis. They also do not suggest any significant fertility-enhancing effect of the scheme.

Is the Quarter of Birth Endogenous? New Evidence from Taiwan, the US, and Indonesia

Recent evidence based on US data suggests that the quarter or month of birth (QOB or MOB) may be endogenous, since family characteristics can explain up to 50% of the effects of QOB on the education outcomes and earnings of adult males. In this study, based on a sample of one million Taiwanese siblings, we examine university admission at age 18 as our outcome variable and find that at school entry, the oldest (September born) children are 31–38% more likely to be admitted into university at age 18 than the youngest (August born) children, indicating strong seasonality in university admission. The inclusion of controls for family background is found to explain only a small portion of these effects, particularly for males. Given that such results are at odds with the recent US evidence, we revisit the US Census data and find that when racial differences are properly controlled for in the estimation, even a rich set of family characteristics is capable of explaining only a minor proportion of the QOB effects. Furthermore, using data from the US and Indonesia, we find that seasonal temperature variation is unlikely to be an important contributor to the US-Taiwan disparity. Our findings imply that the validity of using QOB or MOB as an instrumental variable may be dependent on the population being studied and the sample selected.

Does Public Income Induce More Consumption

The Life-Cycle/Permanent Income Hypothesis predicts that income uncertainty reduces an individual’s incentive to consume, while holding permanent income level constant. This implies that switching from a relatively unstable form of income to a stable one motivates consumption. This article explores this implication by quantifying and comparing the marginal propensity to consume (MPC) out of private income and income from a public pension scheme. It exploits the introduction of a public pension that provides a monthly fixed amount of payment – a relatively secure source of income. The results suggest that the provision of pension leads to a higher MPC for the beneficiaries’ households, and the estimated MPC out of the pension income is significantly larger than the corresponding estimate for private income. Further examination suggests that households facing more non-tradable risks appear to be more prudent on consumption, highlighting the role of income uncertainty in households’ consumption decisions.

Rates of Return to Four-Year University Education: An Application of Regression Discontinuity Design

It is invariably difficult to estimate the rate of return to university education, because of the problem of omitted variable bias. Using a regression discontinuity design, we estimate the effect of a four‐year university education on earnings, and we explore the pathways through which the effect operates. Our estimation exploits the centralized, score‐based college/university admission system in China, where the minimum scores required for university admission are externally determined by the provincial governments. Our findings suggest that being eligible for four‐year university admission implies a sizable increase in earnings. The payoff can be attributed to the prolonged length of education and improvements in education quality, although the quality effects cannot be precisely estimated.

Tenure Security and Long‐term Investment on Tenanted Land: Evidence from Colonial Taiwan

We use farm diary data from Taiwan in the 1920s and 1930s to estimate the impacts of a state‐wide tenancy reform on tenants’ investment in the farmland and production outcome. The reform, commencing in 1922, enhanced the tenure security for the tenants by promoting written contracts that extended tenure length from 1 year to 5–6 years, and by establishing government‐sponsored organizations for dispute settlements. Our estimations rely on a difference‐in‐difference framework, where self‐cultivated farms are used as the control group. We find that the reform encouraged tenants to make investments in the irrigation and drainage system of the farms, which is expected to have long‐lasting benefits for production. The improved irrigation/drainage system led to significant efficiency gains for the farms. In contrast, the reform did not affect tenants’ usage of fertilizer much, which benefits production for only a crop season or a year.