Private transfers in comparative context NTA workshop Berkeley, January 2006

1. Private transfers in comparative contextNTA workshop Berkeley, January 2006 F.C. Wolff University of Nantes, France

2. Outline of the presentation • Forms of private transfers • Comparative results • Important questions and implications • What can we do from a comparative viewpoint?

3. Forms of private transfers • (1) Financial transfers • (2) Time transfers • (3) Home-sharing • (1) is given by interhousehold transfers • (3) is picked up by intrahousehold transfers • (2) no information actually in NTA

4. Forms of private transfers(1) Financial transfers • Pocket money • Cash gifts: more regular transfers • Donations, bequests: more infrequent data • Intrahousehold transfers • Charitable contributions

5. Forms of private transfers(1) Financial transfers • No clear data on pocket money • Good information on regular cash gifts with a consumption survey • Bad information for bequests • Good estimation a priori of intrahousehold allocation of resources • No clear information so far on charitable contributions: also, who are the recipients of such transfers ?

6. Forms of private transfers(2) Time transfers • Time spent with children on school work • Receipt of grandchild care for middle-aged adults having children • Time transfers made to the elderly because of old age • Volunteer work

7. Forms of private transfers(2) Time transfers • Do such transfers matter ? Yes ! • Because they have strong implication on the labor supply either of the donor or the recipient (very important for age profiles on earnings) • Two cases: • i) transfers to elderly parents: middle-aged adult may leave the labor market in order to care for their parents • ii) middle-aged adults may benefit from grandchild care to improve their labor force participation • Consequence: we cannot study separately the provision of family transfers and the labor force participation of individuals… because of strong interrelationship a priori ! • For instance, recent data on Share (10 european countries) show that receiving grandchild care allows mother to have more likely a paid job !

8. Forms of private transfers(Measurement issue) • Important point : what to do with bequests when using a consumption survey ? • Someone who is about 60 certainly receive a bequest from parents (say add 20 years for the donor) • But someone who is 85 is more likely to receive a bequest from spouse (so donor’s age should be similar to the age of deceased spouse ?) • Very ad hoc assumptions !!!! (spouse age + 30 if age<50, spouse age + 25 if age>50 & age<60, spouse age + 20 if age > 60 & age <70, etc) • Need for assets and inheritances data sets ! Difficulty : no clear aggregate control

9. Comparative results • Results on 7 countries • Taiwan 1998, Costa Rica 2004, Thailand 1996 and 2004, Indonesia 1999, US 2000, South Korea 2000, France 2001 • Normalized by mean of labor income (ages 30-49)

10. Comparative results • Result 1.Private transfers mainly flow to the young generations, and to a lesser extent to the elderly • Result 2.No clear explanation concerning differences between countries, see for instance Indonesia and Thailand (similar pattern of old-age support was expected ?)

11. Private transfers – All (mean)

12. Private transfers - Taiwan

13. Private transfers – Costa Rica

14. Private transfers - Thailand

15. Private transfers - Indonesia

16. Private transfers - US

17. Private transfers – South Korea

18. Private transfers - France

19. Evidence on bequests

20. Comparative results • Result 3. Different profiles are observed for interhousehold transfers between developed and developing countries: money mainly flows downwards in developed countries • Note: cross-country comparisons are useful to detect bizarre results !

21. Interhousehold transfers – All (mean)

22. Interhousehold transfers – Costa Rica

23. Interhousehold transfers - Thailand

24. Interhousehold transfers - Japan

25. Interhousehold transfers - Indonesia

26. Interhousehold transfers – South Korea

27. Interhousehold transfers - France

28. Interhousehold transfers: Thailand as an outlier ?

29. Cash gifts versus bequests • Result 4. Bequests are relatively more important than inter vivos financial transfers • Result 5. In France, households first receive inter vivos transfers, and then receive bequests later in the life cycle

30. Cash gifts versus bequests - France

31. Cash gifts versus bequests – South Korea

32. Cash gifts versus bequests – Costa Rica

33. Intra versus interhousehold transfers • Result 6. Intrahousehold transfers are much more important than interhousehold transfers • Corollary. Tests of family transfer motives are certainly biased as they only consider either cash gifts or bequests ! (and in fact results are slightly difference once co-residence is taken into account in the analysis)

34. Intra versus interhousehold transfers – All (mean)

35. Intra versus interhousehold transfers – Costa Rica

36. Intra versus interhousehold transfers – Thailand

37. Intra versus interhousehold transfers - Japan

38. Intra versus interhousehold transfers - Indonesia

39. Intra versus interhousehold transfers – South Korea

40. Intra versus interhousehold transfers - France

41. Important questions • Question 1.Do we overstate the magnitude of intrahousehold transfers ?=> this could occur because we have imperfect information on home ownership and lack of appropriate data to understand the dynamics of home-sharing arrangements for instance: when an adult child lives with a parent, who owns the dwelling?=> we also do not account for domestic production and positive externalities within the family (grandparents providing grandchild care services…)

42. Important questions • Question 1 (…) => also, we have to be careful about the meaning of these intrahousehold transfers… in the sense that they include both intergenerational transfers and intragenerational transfers: • Transfers to children and parents • Transfers between spouses => problems of aggregate control for family transfers (inter or intra)

43. Important questions • Question 2.Can we say anything about the motives for private transfers ? • Very briefly, two main motives : altruism or exchange • Survey in Laferrère A., Wolff F.C., (2006), ‘Microeconomic models of family transfers’, in S.C. Kolm, J. Mercier Ythier (eds), Handbook on the Economics of Giving, Reciprocity and Altruism, North-Holland, Elsevier. • Main conclusion of the survey: most of the tests using microdata are not really conclusive … strong predictions of the altruistic model are always rejected (but if we do not account for all the transfers … what can we say ? … recall the importance of neglected intrahousehold transfers)

44. Important questions • Question 2 (…) • We have to be very careful with an interpretation in terms of altruism or exchange with the data ! • To properly account for the exchange model, we need data over several years : does a given cohort repay its debt to the parents ? • But again be cautious : middle-aged adults may repay their debt in the form of time transfers (this would be the core of a services-money exchange ! … and large transfers certainly don’t mean large altruism

45. Important questions • Question 2 (…) • As NTA draw on consumption surveys, one can use more rigorous tests for the altruistic model, for instance by estimating engel curves both with nuclear and extended families. • The distribution of resources between generations (for a given family) should not matter under altruism : this is the well-known income pooling property • Other and more recent ideas on measuring altruism through the use of subjective measures on well-being (just estimate say the well-being of a parent as a function of parental characteristics plus child’s well being … in France, around 0.1 / 0.15)

46. Important questions • Question 3.What about the interplay between private and public transfers ? • Imagine that we observe over time a rise in public support to the elderly and a decline in the provision of upstream transfers • Does it mean that public support crowds out private transfers ? • Perhaps no ! There may be simply some changes in the form of family old-age support, i.e. with a substitution between time transfers and financial transfers • middle-aged adults would now give more time and less money to their parents). • Young retired parents may care for grandchildren instead of giving money • So again, it is very important to account for all the different types of transfers

47. Important questions • Question 4.How can we interpret the results ? • We are interested in understanding the effects of aging. • We get cross-sectional estimates for labor income and private transfers age profile (a snapshot) • But as elderly people are growing older, this should have consequences on the labor market participation of middle-aged adults • Women may leave the labor market to care for parents • Or women may increase their labor participation to get more money and pay for formal care • We are currently doing as if labor participation and family transfers provisions are independent … but in fact there is a strong interrelationship between labor decisions and private transfers.

48. Conclusion • Very useful analysis from a comparative perspective … • … because we can get some quite general conclusions • However, more detailed micro data are undoubtedly needed to better understand issues like : • Do people behave in an altruistic way ? • Measurement of the crowding out effect • The interrelationship between the provision of family transfers (either given or received) and the labor decisions of family members • And please recall that forms of transfer are changing over time and with the demography: growing importance of grandchild care transfers since there are many more families with three and sometimes four generations (for instance, more than 40% in Europe with a sample of 10 countries)