Poverty Among the Elderly: The Role of Public Pension Systems

The objective of this paper is to measure the impact of first-pillar public pension spending on the prevalence of poverty among the elderly. Using data from 27 European countries from 1995 to 2014, we estimate the sensitivity of the poverty rate among individuals aged over 65 years to per capita public pension spending. We show the existence of a – nonlinear – relationship between these two variables. The sensitivity (or elasticity) is negative and statistically significant beyond a level of spending of €685 per capita. At the average value of €2,819, the elasticity is about -1.45, meaning that a 1% increase in spending would reduce poverty by 1.45%. This nonlinear relation is robust to controlling for the possible presence of reverse causality, to different robustness checks like the variation of the poverty line, and to the inclusion of country-specific differences in public pension plans.