Large Cash Transfers to the Elderly in South Africa

Abstract

We examine the social pension in South Africa, where large cash sumsþabout twice the median per capita income of African householdsþare paid to people qualified by age but irrespective of previous contributions. We present the history of the scheme and use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers, documenting who receives the pensions, their levels of living, and those of their families. We also look at behavioral effects, particularly the effects of the cash receipts on the allocation of income to food, schooling, transfers, and savings. Two methodological issues run through our analysis. The first is the danger of interpreting simple correlations and regressions without adequate consideration of likely biases. The second is the problem of measuring the effects of a program that is determined by individual or household characteristics. We examine both in the context of the South African pension. Our results are consistent with the view that pension income is spent in much the same way as other income, and that a rand is a rand, regardless of its source.