The unintended effects of universalizing social pensions: Evidence from Mexico

Abstract

We examine the effects of the 2019 expansion of Mexico's Social Pension Program. This reform simultaneously increased benefit generosity and expanded eligibility to individuals previously excluded because they received contributory pensions. Using nationally representative household data and a combination of difference-in-differences and triple-differences strategies, we separately identify the effects of increased transfer generosity and expanded eligibility. We find that the combined reform substantially increased program participation, household income, and reduced both poverty and extreme poverty. However, these gains were driven primarily by the increase in benefit levels. When we isolate the effect of universalization, we find no significant reduction in poverty and a modest increase in extreme poverty by 2024. Consistent with a labor-leisure framework, this increase is concentrated among low-income elderly individuals who reduced labor supply after receiving the pension despite the transfer being insufficient to fully replace forgone earnings. The universalization also expanded participation among low-income elderly who may have previously faced barriers to enrollment while attracting substantial participation among higher-income beneficiaries whose economic behavior remained largely unchanged. In addition, the reform generated heterogeneous effects on household consumption, health expenditures, and educational investments. Overall, the results highlight an important trade-off of universal social pensions: broader access can reduce exclusion, but the welfare consequences of expanding coverage may differ substantially from those of increasing transfer generosity.