Private and Familial Transfers: Methods, Results, and Problems

1. Private and Familial Transfers Andrew Mason with assistance of Nicole Mun-Sim Lai

2. Outline • Describe the methods • Present illustrative results • Identify problems that need to be addressed

3. Private Transfers • Reallocation of economic resources from one age group to another • Familial transfers • Inter-household transfers • Intra-household transfers • Capital transfers • Non-familial transfers: transfers through private foundations, religious organizations, etc.

4. How important are these forms of transfers? Private charitable contributions: in the US contributions for welfare about ¼% of GDP; education about ¼% (Lindert 2004).

5. How important are these forms of transfers? • Inter-household and intra-household for Taiwan from Nicole • Bequests – crude estimate: 5% of C (1/life expectancy of a household times assets divided by consumption) • Private charitable contributions: in the US contributions for welfare about ¼% of GDP; education about ¼% (Lindert 2004).

6. Inter-household Familial Transfers • Assumption: All inter-household transfers are between household heads • Inter-household transfers are estimated directly from FIES or similar surveys • Capital transfers are excluded • Discrepancies between inflows and outflows • Reporting error: giving > receiving • Gifts to and from ghost households • Remittances from abroad

10. Modified Arrow Diagrams • Foot is at mean age of outflow • Head is at mean age of inflow • Per Capita Inflow and outflow are not equal • Per capita outflow is width of arrow at base • Per capita inflow is width of arrow near head • Expressed relative to total consumption to facilitate inter-temporal comparison

12. Inter-household Transfers:Issues • Reporting errors and absence of aggregate controls • Distinguishing inter-household transfers from capital transfers

13. Intra-household Transfers • By assumption, household heads hold all assets; save and dis-save; give and receive inter-household transfers; hence, • Consumption by non-head household members must equal labor income + public transfer + intra-household transfers.

14. Intra-household Transfers

15. A Simplification • Intra-household transfers can be estimated without estimates of public consumption by age; • Public consumption and in-kind public transfers are identical; hence, they drop out of the calculation of intra-household transfers for members; • Substitute private for total consumption and net cash public transfers for public transfers.

16. Intra-household Transfers • Intra-household transfers for any household j must sum to zero; hence, intra-household transfers to the head equal to – transfers to members:

17. Warning! • Method requires estimates of key variables by headship status (or assumption that the variable in question is independent of headship status); • For Taiwan, we have labor income and net public cash transfers for each household member; • Consumption is assumed to be independent of household status.

18. Inflows and Outflows • No direct measure available. • If NO household member both receives and gives household transfers, then: • Outflows and negative net transfers are identical; • Inflows and positive net transfers are identical.

23. Sector Specific Transfers: Education and Health • Sector specific transfers are valuable complement to public sector specific transfers • However, household transfers are not governed by an explicit program or contract • Strategy: specify the transfer system a priori

24. A proposed sector specific transfer system • Two kinds of programs • General support • Targeted support (health and education) • Targeted support system • Spending on targeted consumption is financed entirely by transfers to the individual consuming the good • Transfers are financed by taxing the household’s taxable income

25. Education Transfers • Transfer inflows: • Transfer outflows:

26. Education Transfers

27. Taxable Income • Broad measure has advantage that it will be greater than zero for all households • Equation (6) suggests labor income + net public transfers + net inter-household transfers + asset income. • Perhaps the imputed return to durables (if any) and owner-occupied housing should be excluded.

28. Intra-household Transfers:General Support • Intra-household transfers for general support are calculated as a residual, i.e., the difference between intra-household transfers and targeted transfers • Equation 8 isn’t quite correct because individuals can be outflows for one sector and inflows for another.

29. Familial Education Transfers (Inflows) by Age, Indonesia. Source: Maliki 2004.

30. Familial Education Transfers (Outflows) by Age, Indonesia. Source: Maliki 2004.

33. Intra-household Transfers: Issues • Intra-household transfers are only as good as consumption estimates and, hence, subject to the same problems; • Importance of imputing labor income by headship status; • Sector specific estimates • Direct estimation of health expenditure profile needs testing; • Arbitrary nature of outflows.

34. Generational Succession: Familial Capital Transfers • Inter- and intra-household transfers support current consumption • Capital transfers are intended to transfer wealth, per se, to descendant generations

35. A Simple Model of Patrilineal Succession • Households consist of father and his sons; Father is the head until his death; eldest son takes over as head; brothers remain. • Mortality of eldest males and households equivalent. • Capital outflows: • Identical to bequests; • Depend on mortality of males/households and co-variance between mortality and wealth. • Capital inflows: • New households are reconstituted ghost households (with sons as heads) • Estate taxes.

36. Complexities • Head may abdicate household leadership prior to his or her death • Household fusion • Headship succession • In NTA system wealth follows headship: death of the household not death of an individual leads to a capital transfer.

37. Complexities • Intra-generational succession • In many societies, household leadership passes to the surviving spouse if any; • In NTA, this is a non-event in the sense that the household of age a survives; • However, the death of the head may precipitate an inter-generational transfer even though the household persists; • Relevant to modeling relationship between household transitions and mortality.

38. Complexities • Intra-generational transfers II • If individuals or couples purchase annuities, their death leads to an intra-generational transfer rather than an inter-generational transfer;

39. Complexities • Sharing rules for intergenerational transfers • Eldest son • Equal division • Other? • Estate taxes • Bequests • Other capital transfers

40. Complexities • Other Capital Transfers • Estate tax avoidance • Other inter vivos capital transfers • Dowry • Bride price • Fancy wedding • Help with house

41. NTA Bequests • Transfers that arise due to the decline in the number of households: • Decline is due to: • Death to the household head • Fusion (parents move in with their children) • Generational succession (headship designation passes to younger generation)

44. NTA Bequests - Outflows Survival of cohort wealth: Survival of households: Correlation between wealth and survival: Coefficient of variation for wealth:

45. NTA Bequests - Outflows • The correlation between wealth and household survival captures some of the complexities: • Effect of wealth on individual survival • Effect of wealth on household fusion and headship transition

46. NTA Bequests - Inflows • Sharing Rules • Equal sharing among offspring • Parity bias, e.g., eldest or eldest son • Gender bias – no effect • Inflows are to households of non-head beneficiaries

47. Other Issues • Estate taxes • Other capital transfers