Assessing the Permanent Income Hypothesis in Poor Areas: The Case of Rural Pensions in Brazil

In Brazil, poor women in family agriculture are entitled to a monthly unconditional pension from the government when they turn 55, a large predictable income increase for rural families. In this paper, we use a national family expenditure survey and a fuzzy regression discontinuity design strategy to estimate the impacts of that pension on consumption, finance and labor market indicators. We show that the pension increases income by 50%, but does not change the consumption of non-durables or food insecurity. Loans repayments rise upon receipt of the pension, which implies that access to credit allowed consumption smoothing. We also find heterogeneity of responses by socioeconomic status, with women with lower education levels driving the result, while those with higher education levels increased their non-durable spending. These findings lend support to the standard life-cycle consumption model, even in very poor environments.