Association for Public Policy Analysis & Management

We study the effect of differences in payment frequencies (monthly and bimonthly) across two noncontributory pension programs in Yucatan, Mexico, using a quasi-experimental approach. We find that pension recipients have trouble smoothing consumption, in the sense that expenditures on food and beverages significantly decreased during the later stages of the pay-cycle (particularly when the pay-cycle is two months). We also find that the high frequency program increased doctor visits and reduced the chances that an older person does not visit a doctor due to lack of money. It also reduced the incidence of hunger spells more strongly than the low frequency one. On the other hand the lower frequency program increased the consumption of the more expensive non-cereal food items and helped maintain the ownership of durable goods: in particular cell phones and bicycles. In addition, we find evidence of different effects on the interactions of recipients with others: the monthly pension program is associated with less need for support from charities, and a stronger increase in satisfaction with social relationships. The bimonthly pension program, on the other hand, is associated with a larger increase of transfers from recipients to other family members, a smaller reduction in concerns about money taken by others, and a smaller improvement in satisfaction with social and family relationships. Both programs reduce labor supply and increase satisfaction with income at about the same rates.