t This paper investigates the impact of pension income on living arrangements
of the elderly. Taking advantage of a unique opportunity due to the recent establishment
and expansion of the New Rural Pension Scheme in China, we explicitly address the
endogeneity of pension status and pension income through a fixed-effect model with
instrumental variable approach by exploiting exogenous time variation in the program
implementation at county level. We find an overall positive effect of pension income on
independent living as well as considerable heterogeneity. The positive income effects of
the NRPS are concentrated among the elderly with adult children living nearby, of
higher socio-economic status, and with better health at baseline; for other groups, the
effects are insignificant. We also find that more generous programs exhibit larger
effects. Our results highlight that living arrangement is multidimensional in rural China.

• The heterogeneous impact of pension income on elderly living arrangements: evidence from China’s new rural pension scheme