The ex-ante effects of non-contributory pensions in Colombia and Peru

This paper studies the ex-ante effects of the implementation of a Non-Contributory Pension (NCP) program in Colombia and Peru. Relying on household survey data, we simulate the transfer’s potential impact on poverty, inequality, fiscal cost, and the probability of affiliation to contributory pensions. Our results show that a NCP reduces poverty and inequality among the elderly, particularly in rural areas, at an arguably limited fiscal cost. Regarding behavioural effects, there is not a large impact on the probability of affiliation to contributory pensions when the program is targeted to the poor, with the exception of Peruvian women. Finally, we also compute some potential effects on the recipient’s labour supply.