following years. Data from Mexico’s National Population Council (CONAPO, for its acronym in Spanish) show that the population ages 65 years or older was 3.7 million in 1990 and it doubled by 2012. Projections from CONAPO show that the population ages 65 years or older will nearly double again by 2030 reaching almost 14 million people, 10.3% of the total projected population. Given that most of the adults that will reach 65 years of age in the coming years will not qualify for a contributory pension, PAM will face increased demand. Also, given the limited public resources, policy makers might be interested in knowing whether PAM is achieving its objective of reducing old age poverty or not and may want to better understand the effects of PAM on other important factors such as labor supply of the elderly.

Using the ENIGH-MCS of 2010, 2012 and 2014, we exploit the fact that the program’s main eligibility feature is age. When PAM started in 2007, it only benefited adults of 70 years of age or older. However, in 2013 the program expanded its target population allowing the enrollment of adults from 65 years of age or older. We compare the average changes in outcomes for the group that became eligible with the expansion of the eligibility threshold with the group that is immediately below that age, before and after the intervention. While these two groups of individuals are not radically different from each other, we acknowledge that it would be inadequate to assume that their pre-treatment characteristics are identical at that life stage. Therefore, we used a regression discontinuity approach combined with a difference-in-differences strategy to improve statistical precision of the intention to treat effects. We also estimated the treatment on the treated effects using an instrumental variable methodology (IV).

Additionally, we investigate the potential transmission channels of the effects of the expansion of the social pensions program on extreme poverty and on labor supply, or lack thereof. Many of the beneficiaries of Mexico’s social pension program are poor. Receiving this income shock, ceteris paribus, reduces poverty. However, other things may not be equal. Consumer choice theory and the labor-leisure standard model suggest that considering that leisure is a normal good and given that the consumer has a finite amount of time and rational preferences in the relevant preference range, an increase in income may cause an increase in leisure consumption and a decline of the amount of labor supplied. Hence, if the wage (or labor income) per hour remains constant, a reduction in the number of hours worked decreases total labor income. Therefore, whether the expansion of PAM decreases labor income and labor supply of the old age population, or not, remains an empirical question.

Moreover, we examine whether the expansion of the social pension program has a statistically significant effect on domestic private transfers from other households or on remittances. This can partially explain the effects of the program on poverty reduction and labor supply.

This paper aims to uncover the short term causal effects of the expansion of PAM on extreme poverty and labor supply of the elderly in Mexico. In Section I, we broadly describe the evolution and trends of pension systems with an emphasis on Mexico. Section II presents the focused literature review on the effects of social pension programs on consumption, poverty, labor supply, and private transfers from other households, among others. Section III describes the Pension Program for the Elderly over time and its expansion in 2013. In this section, we explain the characteristics of the data we used and of the elderly population in general, and we discuss the empirical strategy implemented 3