Private Intergenerational Transfers Research Articles

Generational Wealth Accounts: Did Public and Private Inter-Generational Transfers Offset Each Other over the Financial Crisis?

Abstract We develop Generational Wealth Accounts (GWA): the first set of balance sheets, by generations, to include all human capital, tangible wealth, financial wealth, and transfer wealth, and the uses to which these are put, and employ them to quantify inter-generational transfers and the sustainability of consumption. Consumption plans in the UK public sector worsened over the financial crisis and are unsustainable; private sector plans improved, and are now almost balanced. Increases in private capital transfers to the young offset the effect of increased public debt. House price increases shifted resources from young to old but had little effect on sustainability.

Private Intergenerational Transfers, Family Structure, and Health in a sub-Saharan African Context.

CFP acknowledges funding from the David E. Bell fellowship and the ANU Futures Scheme. Funding for the MLSFH has been provided by the NICHD (grants R01 HD053781, R01 HD/MH041713, R01 HD37276, R01 HD044228, R21 HD050652, R03 HD058976, R21 HD071471, R01 HD087391), and the Swiss Programme for Research on Global Issues for Development (SNF r4d grant 400640_160374). The MLSFH also acknowledges support through pilot grants from the Population Studies Center (PSC), Population Aging Research Center (PARC), the Boettner Center for Pensions and Retirement Security, the Institute on Aging, and the Center for AIDS Research (CFAR), all at the University of Pennsylvania, and supported by NIH grants NICHD R24 HD044964, NIA P30 AG12836, NIAID AI 045008. NICHD R01HD053781 and R01 HD087391 are the only grants that provided direct support for the writing of this manuscript.

Is there a connection between welfare regimes and inter-age reallocation systems?

Abstract Previous research connecting transfers and welfare regimes is to some extent limited, as it focuses mainly on either public or private transfers or it takes into account only certain age groups. This paper uses the recently developed National Transfer Accounts (NTA) methodology that enables comprehensive measurement of (1) public and (2) private intergenerational transfers (the ones that go through monetary transactions and those that result from the family provision of welfare in terms of unpaid work), as well as (3) asset-based reallocations resulting from interaction with capital and financial markets. Moreover, we take into account all age groups and the gender dimension as well. Our analysis provides comparable NTA results for 10 EU countries from 2010 and links welfare regimes and inter-age reallocation systems. The paper contributes mainly to the existing welfare regimes’ literature by incorporating several dimensions of welfare domains, also those usually criticized as not being included in the Esping-Andersen’s (1990) initial typology of welfare regimes (for example, by including care responsibilities provided by both genders). Based on five indicators, we show a clear connection between welfare regimes and inter-age reallocation systems and classify countries into three different groups: social-democratic (Hungary, Slovenia, and Sweden), conservative (Austria, Finland, France, Italy, and Spain), and liberal (Germany and the United Kingdom). Germany is the main exception; based on inter-age reallocation results, it is not characterized as a prototypical conservative welfare state, but rather as a liberal welfare state.

The Involvement of Russian Households in Intergenerational Transfers 2008-14

This paper investigates how households of various demographic compositions are involved in private intergenerational transfers in Russia. The authors provide a descriptive analysis of private exchanges using household surveys. The Russian Longitudinal Monitoring Survey—Higher School of Economics (RLMS-HSE, 2004, 2008, 2013), The Comprehensive Monitoring of Living Conditions (KOUG, Rosstat), The Survey of the Population Income and the Participation in Social Programs (VNDN, Rosstat). The study demonstrates that the demographic composition of households is an important predictor of household involvement in private exchanges of different goods and services. Single-person households and households represented by couples without children show their particular donor capacity in private intergenerational transfers. The recipients of private material transfers are primarily one-parent families and couples with under-age children. Multigenerational households and other households are also recipients of private material transfers. This paper demonstrates that the role of a household’s private exchange is related to their financial situation, but the role of private intergenerational transfers is not limited to giving assistance to the poor.

Care for Money? Mortality Improvements, Increasing Intergenerational Transfers, and Time Devoted to the Elderly

Background: After the reunification of Germany, mortality among older eastern Germans converged quickly with western German levels. Simultaneously, the pension benefits of eastern Germans rose tenfold. Objective: We make use of German reunification as a natural experiment to show that, first, increasing financial transfers from the elderly to their children led to increasing reverse transfers in the form of care; and, second, this rise in the number of hours spent on care led to a reduction in old-age mortality. Method: As a first step, we calculated intergenerational transfer profiles by age for eastern and western Germany to determine whether any changes in downward and in upward transfers in the form of time and money occurred since reunification. We use generalized linear regression to test whether rising pensions led to an increase in the number of hours spent on care, and whether this increase led to a reduction in old-age mortality. We use different macro level data sources to test our hypothesis, including mortality rates and time use surveys for East and West Germany and information on private intergenerational transfers from the National Transfer Accounts project for Germany. Results: We show that since German reunification, intergenerational downward transfers more than doubled in percentage terms in the east. This was predominantly caused by the sharp increase in pension benefits since the fall of the Berlin Wall. At the same time, mortality among pensioners dropped markedly, and converged to western German levels. We further show that the rise in pension income was strongly correlated with the increase in social support and the decline in mortality among older eastern Germans. Discussion: Our result suggest that there was an interfamilial monetary transfer from the elderly to the young in exchange for social support. This mutual beneficial exchange may have helped to improve the survival of older East Germans after the reunification.

Motives for Bequests within the Middle Class

The life-cycle model of household behavior forms the basis for most economic analysis of Social Security, private pensions, and retirement. This project seeks to extend the usefulness of the life-cycle model by considering the role of middle-class inheritances and bequests. We use HRS data. Prior work by the authors identifies key information in the HRS on the sources of private intergenerational transfers, and it shows that the frequency of couples’ inheritances from both spouses’ family lines is higher than random behavior would imply. Using additional HRS data on the ratio of parent-to-child lifetime incomes, we analyze the motives behind HRS bequests. We find support for an unintentional transfer model in which bequests arise from residual, unspent parent life-cycle resources. And, we show that our model can account for the frequency of dual inheritances that earlier work revealed.

Intergenerational Transfers in the Health and Retirement Study Data

Many economic analyses of public policy issues are based upon the life-cycle model of household behavior. The usual formulation omits private intergenerational transfers. This paper considers the possibility of a more sophisticated formulation that includes the latter. We examine 1992-2008 HRS data on inheritances and inter vivos gifts. We uncover an underreporting problem in the data: a household’s financial respondent often seems to understate transfers from his/her in-laws. Nevertheless, other aspects of the data seem very useful. About 30-40 percent of households eventually inherit. Inheritances seem to reflect a mixture of intentional and accidental bequests, with the latter twice as prevalent.

PRIVATE INTERGENERATIONAL TRANSFERS AND THEIR ABILITY TO OFFSET THE FISCAL BURDEN OF AGEING

The ratio of retirees to workers in developed countries is expected to increase sharply in the next few decades. In the presence of unfunded income support policies, this increase in old age dependency is expected to increase the future fiscal burden of ageing, which is seen as a threat to living standards. Private intergenerational transfers in the form of bequests are also expected to increase in ageing societies, which may offset the adverse effects of the fiscal burden of population ageing on future living standards. This paper quantifies the ability of these private intergenerational transfers to offset the future fiscal burden of ageing in Australia. This is done through developing a dynamic overlapping generations simulation model with realistic demographics. Calculations based on steady-state simulations (with a pay-as-you-go tax rate equal to 3.3% of GDP) suggest that a bequest to GDP ratio of 1% offsets approximately one-third of the fiscal burden over the lifecycle when measured as a proportion of simple labour income and one-eleventh of the fiscal burden when measured as a proportion of full income (labour income plus leisure). The model is calibrated for Australia under a small open economy assumption such that the optimal solution mimics important cross-sectional and time-series fundamentals of the Australian economy. For the non-steady-state, intergenerational accounting suggests that the empirically plausible intergenerational transfers are strong enough to offset most of the tax burden (80–90%) when measured as a percentage of simple labour income and up to one-quarter of the burden when fiscal burden is measured as a percentage of full income.

How do middle-aged children allocate time and money transfers to their older parents in Europe?

This paper analyses the determinants of financial and time transfers from adult children to their older parents using the Survey of Health, Ageing and Retirement in Europe (SHARE). It is the first survey containing rich comparable interdisciplinary information about individuals aged 50+ from ten European countries (Austria, Denmark, France, Germany, Greece, Italy, the Netherlands, Spain, Sweden and Switzerland). The first part of the paper highlights the differences in the provision of upward private intergenerational transfers (in terms of both time and money) across the ten European countries. The second part describes the different determinants in the decision to provide time or money transfers to parents and evaluates whether these two types of assistance are substitutes or complements. Results highlight the existence of a substitution between time and money in relation to geographical distance and the existence of a weak substitution regarding the employment status of the middle-aged children.

A SAVINGS SUBSIDISATION SYSTEM IN A MODEL OF ENDOGENOUS FERTILITY AND ENDOGENOUS GROWTH: AN EXTENSION OF WIGGER (1999)

Population ageing is now an established demographic characteristic of many economies. Economists working in the endogenous growth theory tradition have sought to model the relationship between public pensions, financed on a 'Pay-As-You-Go' basis, and the growth in per capita incomes. The resultant intergenerational wealth redistribution from young to older people seems to decrease private savings, diminish capital accumulation, and lower the growth of per capita incomes. The underlying transmission mechanism appears to be a crowding out effect in private capital markets contingent upon the introduction of public pension systems. A growing literature exists on the interrelationships between public pension schemes, fertility rates and endogenous growth. Following Wigger's (1999) pioneering overlapping generations endogenous growth model, we extend this model to examine the effects of a savings subsidisation system on the rate of per capita income growth, fertility and voluntary intrafamily wealth transfers, where parents view children both as an insurance good and a consumption good. Moreover, children care about the consumption levels of their parents. An increase in contributions to a savings subsidised public pension scheme will crowd out private intergenerational transfers from the young to the old and thereby negate the usefulness of children as an insurance good.

Do Intergenerational Transfers From Elderly Parents Increase Social Inequality Among Their Middle-Aged Children? Evidence from the German Aging Survey

This study examines the consequences of private intergenerational transfers from elderly parents to their middle-aged children with respect to social inequality within the children's generation. With use of the nationally representative cross-sectional sample of the German Aging Survey, descriptive analyses as well as multivariate logistic regressions are used to identify the effects of three different types of private intergenerational transfers in the middle-age group (40-54 year olds, n = 1,719 for inter vivos and n = 1,446 for mortis causa transfers). Transfers from parents or parents-in-law during the last 12 months-many of them smaller ones-are not significantly related to children's income. Separated and divorced children have significantly higher probabilities of receiving such transfers, indicating a need-directed family transfer process. Larger transfers before the last 12 months are need directed as well and moreover positively related to income position. Bequests, finally, are positively related to income position while having no need component at the time of observation. Whereas larger monetary transfers and bequests may increase social inequality in the children's generation, a substantial part of the regular monetary flow from elderly parents to their adult children buffers situations of need. Public policy should take into account these different effects. Reducing the general level of public pensions would weaken regular transfer giving and thus lead to more inequality in the children's generation. Higher taxation of very large transfers and bequests would have the opposite effect.

Intergenerational Altruism and Neoclassical Growth Models

This chapter surveys intergenerational altruism in neoclassical growth models. It first examines Barro's approach to intergenerational altruism, whereby successive generations are linked by recursive altruistic preferences. Individuals have an altruistic concern only for their children, who in turn also have altruistic feelings for their own children. Through such a recursive relation all generations of a single family (a dynasty) are linked together by a chain of private intergenerational transfers, countervailing any attempt by the government to redistribute resources across generations. This offsetting of public by private transfers operates only if bequests are positive. This is an important qualification to Barro's debt neutrality result. The conditions under which the Ricardian equivalence (debt neutrality) theorem applies are specified. The effectiveness of fiscal policy is further analysed in the context of an economy populated by heterogeneous families differing with respect to their degree of intergenerational altruism. We also examine other forms of dynastic altruism consistent with Barro's recursive definition of altruism, ascending altruism and two-sided altruism. These forms could be expected to deliver debt neutrality unconditionally, as families leaving zero bequests could be families characterised by child-to-parent gift under ascending altruism. We find that this is not the case and no form of dynastic altruism therefore ensures debt neutrality without condition. Even under two-sided altruism there are cases, in which both bequests and gifts are constrained and fiscal policy remains effective. We then review ad hoc forms of altruism and their implications for the debt neutrality results. Only one specific form of ad hoc altruism always guarantees debt neutrality; this form departs from the recursive approach underpinning dynastic altruism, with its objective function being formally equivalent to that of the social planner. Extensions to the fields of education and environmental are presented in a final section.

Can Inheritances Alleviate the Fiscal Burden of an Aging Population?

With pay as you go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay as you go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations' inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency. Copyright 2003, International Monetary Fund

Social Security and Growth in an Altruistic Economy

Abstract This paper studies the macroeconomic impact of private and public intergenerational transfers in the presence of endogenous growth. It focuses on two-sided altruism implying that individuals have both a motive to make gifts to their parents and a motive to leave bequests to their children. The growth effects of social security depend on whether children are making gifts to their parents or parents are leaving bequests to their children. Which of the transfers is operative, in turn, depends on the size of social security benefits. Social security is legislated endogenously. The introduction of a social security program which definitely reduces per capita income growth and harms future generations is contemplated by altruistic individuals even if non-altruistic individuals disapprove it.

Gifts, bequests, and growth

A familiar result in the theory of private intergenerational transfers is that competitive equilibria with gifts from children to their parents are dynamically inefficient whereas they are dynamically efficient with bequests from parents to their children. This note demonstrates that if growth is endogenous, both gift and bequest economies are dynamically efficient, but gift economies grow more rapidly.

Can Inheritances Alleviate the Demographic Burden?

With pay-as-you-go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay-as-you-go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations' inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency.

Can inheritances Alleviate the Fiscal Burden of An Aging Population?

With pay-as-you-go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay-as-you-go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations' inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency.

Financing higher education by loans and fees: theorizing and researching the private effects of a public policy

Whilst research has looked at the effects on students of the introduction of higher education loans, the implications for their families have, for the most part, been ignored. This paper examines some of the possibilities and problems in studying the private effects of this public policy. Difficulties are identified in the use of approaches derived from family studies, research on family-education dynamics, and rational action theory. Not only does some of this work have a strong culturalist emphasis, but where economic matters are included, the significance of, and distinctions between different kinds of family financial assets tend to be ignored. The suggestion is that recent changes in the system of funding higher education in the UK are consistent with some forms of family assets and obligations, but challenge others. It is argued that the promotion of privatization, in education and elsewhere, and of individual investment in human capital, not only fails to acknowledge the importance of collective private intergenerational transfers. It also increasingly depends upon the state and the financial services working in combination.

The Transition to Market Economies in an Endogenous Growth Model with Altruistic Agents

This paper considers an endogenous transition from a self‐sufficient traditional economy to a market economy and its consequences on fertility and growth. The transition can occur if private intergenerational transfers are unable to secure old‐age consumption as adequately as savings on capital markets; otherwise individuals stay in the traditional economy unless the mass‐production technology in the market economy is sufficiently more advanced than individually accessible technologies. Markets emerge only if per capita output exceeds a certain level given a fixed cost of forming markets. The transition reduces fertility and promotes growth under plausible restrictions. JEL Classification: E20; J13; O10

Government Debt, Human Capital, and Endogenous Growth

The effect of government debt on capital accumulation has been debated for more than a century. The debate has focused on the validity of the Ricardian equivalence hypothesis which asserts that the mix of government debt and nondistorting taxes to finance government expenditures has no real effect on an economy. In models with infinitely-lived agents, government bonds increase private assets by the full amount that offsets the rise in future tax liabilities for interest payments and the retirement of public debt. Even in a model with finitely-lived agents, Barro [1] showed that government debt is neutral when private intergenerational transfers are positive and when the rate of growth is lower than the interest rate. With operative intergenerational transfers, Carmichael [4] extended the debt neutrality into a regime where the rate of growth is greater than the interest rate while suggesting some sources of nonneutrality of public debt such as heterogeneous tastes and uncertainty. Moreover, Drazen [6] argued that when intergenerational transfers take the form of investments in human capital which have higher marginal returns than investments in physical capital, government bonds affect the equilibrium solution and increase welfare. In contrast, assuming that private intergenerational transfers are zero, van der Ploeg and Alogoskoufis [10] argued that an increase in government debt depresses real growth through reducing savings in an endogenous growth, overlapping-generations model.' With constant population, the models mentioned above ignore possible responses of fertility to changes in government debt. In an overlapping-generations model with operative bequests, Becker and Barro [3] showed that the neutrality of social security needs modification if fertility is endogenous. Lapan and Enders [9] extended the insight of Becker and Barro [3] to examine the effects of government debt and found that a rise in government debt reduces fertility and raises capital intensity through increasing bequests which are part of the cost of having children. Wildasin [11] also obtained similar results. While endogenizing fertility, none of these models has endogenous growth of per capita income.