The effect of noncontributory pensions on inequality and poverty in Mexico: The case of the elderly pension program, 2016-2022

This study evaluates the impact of Mexico’s pension for older adults (PAM)—formerly known as Programa 65 y Más—on inequality and poverty using microdata from the national survey of household income and expenditure (ENIGH) for the period 2016–2022. The analysis employs inequality measures: a Tobit model and a Heckman two-step selection model to assess the redistributive effects of this noncontributory pension scheme while correcting for potential selection bias. To measure inequality, I compute Lorenz curves, estimate inequality indices (Gini, Theil, among others), and apply the Atkinson index to evaluate inequality aversion. To assess the effect of PAM on poverty, I use the Foster–Greer–Thorbecke (FGT) index as the dependent variable in a Tobit model, which accounts for its censored nature at 0 (for nonpoor households). Given that participation in PAM is not random, I also implement a Heckman selection model, using a probit regression in the first stage to estimate the probability of receiving the pension and incorporating the inverse Mills ratio in the second stage to correct for selection bias. Results suggest that PAM has a modest yet statistically significant effect on reducing income inequality among older adults. However, its impact on poverty is limited because the transfer amount remains insufficient to lift most beneficiaries above the poverty line. This study provides empirical evidence on the redistributive role of noncontributory pensions in Mexico.