November 2022

IZA DP No. 15742: Do Pension Benefits Accelerate Cognitive Decline? Evidence from Rural China

Plamen Nikolov, Md Shahadath Hossain

published in: Journal of Economic Behavior & Organization, 2023, 205, 594 - 617

Economists have mainly focused on human capital accumulation, rather than on the causes and consequences of human capital depreciation in late adulthood. To investigate how human capital depreciates over the life cycle, we examine how a newly introduced pension program, the National Rural Pension Scheme, affects cognitive performance in rural China. We find significant adverse effects of access to pension benefits on cognitive functioning among the elderly. We detect the most substantial impact of the program on delayed recall, a cognition measure linked to the onset of dementia. In terms of mechanisms, we find that cognitive deterioration in late adulthood is mediated by a substantial reduction in social engagement, volunteering, and activities fostering mental acuity.