how do people cope with natural disasters evidence from the great hanshin awaji kobe earthquake in 1995 this paper investigates the coping strategies employed by victims of the great hanshin awaji kobe earthquake in 1995 using a unique household data set we show that households that held a large amount of collateralizable assets before the catastrophe and were free from a binding borrowing constraint were able to maintain their consumption levels by borrowing in contrast households subject to a binding borrowing constraint before the disaster were unable to borrow to cope with the losses inflicted by the earthquake on the other hand both types of households relied on private transfers depending on the extent of the damage

do first time house buyers receive financial transfers from their parents using danish longitudinal data with information about wealth for a sample of first time house buyers and their parents we test whether there are direct financial transfers from parents to children in connection with the house purchase or in connection with unemployment spells occurring just after the purchase when children typically hold few liquid assets first we document that child and parent financial resources are correlated then we introduce conditioning variables and exploit the panel aspect of the data to also condition on fixed unobserved factors which arguably govern preferences and or productivity we find no evidence of direct financial transfers

private transfers borrowing constraints and the timing of homeownership the 1991 italian survey of household income and wealth contains retrospective information on intergenerational transfers this information is used to estimate the impact of transfers on the saving time required to purchase a house it is found that transfers have a small impact on saving time and that after receiving a transfer households purchase considerably larger homes the results have implications for the debate about the source of the relation between aggregate saving and growth

intergenerational linkages in consumption behavior consumption is partly a social activity yet most studies of consumer behavior treat households in isolation we investigate familial relationships in consumption patterns using a sample of parents and their children from the panel study of income dynamics we nd a positive and statistically signi cant parent speci c eect on children s consumption even after controlling for the eect of parental income and we nd similar eects for sibling pairs child consumption responds negatively to large post retirement shortfalls in consumption of the parents this behavior holds up even after allowing for the possibility of smaller parent to child transfers made necessary by the parental consumption shortfalls these results suggest that although income is an important source of the intergenerational correlation parental choices and experiences also aect consumption behavior of the children

intergenerational transfers and liquidity constraints a growing body of evidence indicates that liquidity constraints could affect a substantial proportion of u s consumers but little is known about why these constraints might exist an important but little explored issue is the relationship between inter vivos intergenerational transfers and liquidity constraints these transfers can ease borrowing constraints empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity constrained consumers in particular the distinction between current and permanent incomes of potential recipients is a key aspect of private transfer behavior the findings have important implications for our understanding of consumer behavior

the connection between public transfers and private interfamily transfers abstract this paper investigates the anti poverty effectiveness of public transfers taking private transfer responses into account widespread altruistically motivated private transfers would neutralize the distributional impact of public transfers but exchange motivated transfers can reinforce the effects of public transfers on the distribution of economic well being the common technique for gauging anti poverty effectiveness subtracting public transfers from other income and measuring the poverty rate counterfactual yields results that are close to a more complex procedure that takes private transfer responses into account and some of the empirical findings suggest an exchange rather than altruistic motive for private transfers indicating that the effects of public transfers can be magnified by private behavior this is an exact reversal of the prediction that public transfers merely supplant private ones

intergenerational transfers borrowing constraints and saving behavior evidence from the housing market abstract we examine the effects of intergenerational transfers on saving behavior by analyzing transfers targeted to first time home purchases transfer recipients have a shorter time to save for a down payment of 9 20 for each dollar of transfer received total savings falls by 29 40 cents and the down payment rises by 61 71 cents transfer recipients increase the value of the home purchased but by an amount that is much lower than possible if the transfer were fully leveraged in addition transfers appear to help households achieve certain down payment thresholds that give favorable mortgage terms

educational policy and the economics of the family this paper analyzes the implications of alternative ways to model decision making by families for educational policy we show that many of the policy implications associated with credit constraints cannot be distinguished from the implications of models of the family that differ from the conventional barro becker model we then argue that it is the combination of credit constraints and non conventional preferences that provides a robust basis for government intervention to promote educational investment

parental human capital investment and old age transfers from children is it a loan contract or reciprocity for indonesian families abstract this paper proposes two alternative models of intergenerational transfers linking parental investment in human capital of children to old age support the first model formulates these transfers as a pure loan contract and the second model as self enforcing reciprocity both models predict neutrality of intergenerational redistribution of resources within the family also known as the difference in income transfer derivatives property two models however provide different reasons for the failure of this property and yield different policy implications for parental human capital investment and provision of old age support specification tests on the indonesian family life survey data reject the pure loan model in favor of the reciprocity model the estimated difference in income transfer derivatives for this data is found to be significantly higher than the difference estimated by altonji hayashi and kotlikoff altonji et al 1992 altonji j g hayashi f and kotlikoff l j 1992 is the extended family altruistically linked direct tests using micro data the american economic review vol 82 5 1177 98 for the u s psid data

compensatory inter vivos gifts parents transfer motives are important for understanding e g macroeconomics income re distribution savings and public finance using data from six biennial waves of the health and retirement study 1992 2002 we estimate censored regression models with nested multilevel error components first we interpret our findings that inter vivos transfers from parents to children are gifts rather than temporary help to overcome liquidity constraints second inter vivos gifts are compensatory in the sense that lifetime poorer children will receive higher transfers than their lifetime richer siblings third inter vivos gifts do not however make up the entire difference in lifetime incomes copyright 2009 john wiley sons ltd

pension coverage for parents and educational investment in children evidence from urban china when social security is established to provide pensions to parents their reliance upon children for future financial support decreases and their need to save for retirement also falls in this study the expansion of pension coverage from the state sector to the non state sector in urban china is used as a quasi experiment to analyze the intergenerational impact of social security on education investments in children in a difference in differences framework a significant increase in the total education expenditure is found to be attributable to pension expansion the results are unlikely to be driven by other observable trends they are robust to the inclusion of a large set of control variables and to different specifications including one based on the instrumental variable method

shaping intergenerational relationships the demonstration effect abstract according to the demonstration effect theory parents make intergenerational transfers to their elders in order to elicit a symmetric future behavior from their children in this paper we show that upstream transfers are expected to increase with low returns from alternative financial assets and with the donor s life expectancy the latter effect creates a greater incentive for daughters to care for parents

inter vivos transfers and intended bequests abstract empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior however these two models are unable to explain the strong tendency for inter vivos transfers to be negatively related to the income of the recipient while bequests bear no relationship to income this paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed behavior than are the altruistic and exchange models alone in particular the model developed here predicts differing behavior with respect to inter vivos transfers and bequests due to liquidity constraints and uncertainty about the recipient s permanent income the empirical work uses data from the health and retirement study and the asset and health dynamics study the patterns observed in these data are consistent with earlier findings that inter vivos transfers go disproportionately to less well off children while bequests are divided equally across children further the results support the predictions of the model in that differences in inter vivos transfers arise from differences in current income while differences in bequests result when indicators of the children s permanent incomes differ

ricardian equivalence revisited deficits gifts and bequests barro 1974 shows that operative altruistic transfer motives are key for ricardian equivalence to hold this paper evaluates the importance of this mechanism quantitatively by studying deficit financed tax cut experiments i use a heterogeneous agents overlapping generations economy with endogenously operative transfer motives to capture the fact that empirically transfers occur in some but not in all families altruism is calibrated to match aggregate transfer statistics i find that the response of aggregate consumption to a tax cut is in the ballpark of a standard overlapping generations economy that is an economy without altruistic family links welfare implications of this economy however move closer to a dynastic economy

borrowing constraints and two sided altruism with an application to social security abstract we develop the implications of borrowing constraints and two sided altruism in an overlapping generations framework with agents who live three periods our analysis identifies six equilibrium patterns of intertemporal and intergenerational linkages in the no loan economy one of which corresponds to the traditional life cycle model and one of which corresponds to barro s dynastic model novel linkage patterns involve parent to child transfers early in the life cycle child to parent gifts late in the life cycle or both capital accumulation behavior and the consequences of fiscal policy interventions depend often critically on which linkage pattern prevails we show for example how unfunded social security interventions can significantly depress aggregate capital accumulation even when every generation is linked to its successor generation by altruistic transfers we also derive a non ricardian neutrality result for gift motive economies that holds whether or not borrowing constraints bind and whether or not parent and child are connected by an operative altruism motive at all points in the life cycle

tax avoidance and intra family transfers to what extent do people avoid taxes on intra family transfers be quests and gifts and how would integration unification of the dif ferent transfers taxes affect tax avoidance these issues are important for families and their welfare as well as for governments and their pos sibilities of raising revenue from transfer taxes in this paper we study the effects of transfer taxes on altruistic parents transfers to their chil dren using a theoretical model we find that altruistic parents do not necessarily tax minimize however in some cases when they do there is an infinitely large excess burden of a transfer tax we also find that integration of transfer taxes reduces tax avoidance all tax avoidance is eliminated with complete integration

endogenous altruism theory and evidence from chinese twins this paper studies the endogenous formation of intersibling altruism the theory suggests that parental incentive to foster children s fraternal love is positively related to efficiency gains from

dynamic aspects of family transfers parents transfer a great deal to their adult children and we have rich theoretical models providing a framework for these transfers however both the models and existing empirical work typically examine behavior in the cross section to date we know little about the dynamic aspects of family transfers here i examine transfers over a span of 17 years and find substantial changes in recipiency over time and a strong negative correlation between transfers and transitory income i also find that events such as job loss and divorce are strong predictors of parental transfers and although rare are typically associated with larger transfers than income alone might predict finally transfers are distributed unequally across siblings and perhaps surprisingly the distribution of transfers becomes even more unequal when examined over an extended period of time than in any single year the evidence presented here thus suggests that dynamic analyses can provide insights into behavior that are impossible to obtain in a static context

government debt redistributive fiscal policies and the interaction between borrowing constraints and intergenerational altrusim abstract we show how borrowing constraints intergenerational altruism and their interaction shape the aggregate savings response to government debt and fiscal policies that redistribute resources between living generations we also characterize the conditions under which borrowing constraints bind and the altruistic transfer motive operates in terms of the strength of the altruism motive the shape of the lifetime productivity profile the willingness to substitute consumption intertemporally and other factors finally we characterize the dynamic response of aggregate savings to nonneutral government debt policies in economies with binding borrowing constraints

the roles of destination gender and household composition in explaining remittances an analysis for the dominican sierra two non exclusive hypotheses about what motivates remittances sent by dominican migrants to their rural parents in the sierra are tested a an insurance contract taken by parents with their migrant children and b an investment by migrants in potential bequests results show that the relative importance of these two motives to remit is affected by destination us vs cities in the dominican republic gender and household composition the insurance function is mainly fulfilled by female migrants to the us only when a male is the sole migrant in his household does he play the role of insurer investment by contrast is pursued by both males and females but only among those migrating to the us d 2002 elsevier science b v all rights reserved

accounting for the changing role of family income in determining college entry in this paper i analyze the determinants of college enrolment and the changes in these determinants over time i propose a quantitative life cycle model with college enrolment altruistic parents provide financial support to their children using counterfactual experiments i find that 24 percent of all households are financially constrained in their college decision constraints become more severe over time i show that my model is consistent with a narrow college enrolment gap between students from rich and poor families as previously reported in the empirical literature the estimation of enrolment gaps is a popular reduced form approach for measuring the fraction of constrained households my results suggest that these reduced form estimates are misleading and that a structural model of parental transfers is needed to correctly identify constrained households further i show that parental transfers are an important driver behind the changing role of family income as a determinant of college entry a fact that is well documented for the us economy

the cost of equality unequal bequests and tax avoidance abstract for altruistic parents desiring to bequeath their wealth to their children estate taxes can be costly in utility terms the most straightforward way to reduce the tax burden is through inter vivos transfers taking full advantage of potential tax free giving often requires that parents differentiate between children in the amounts transferred this unequal giving contrasts sharply with the presumed desire to make equal bequests this paper examines the extent to which wealthy parents take advantage of tax free giving and whether the desire to spend down an estate is sufficient to induce unequal giving i find that while wealthy parents do appear to make early bequests they rarely do so to the extent permitted by law and thus forego a substantial amount of tax savings

motives for private transfers over the life cycle an analytical framework and evidence for peru abstract this paper tests for the motives for private income transfers we consider two motives altruism and exchange the question of private transfer motives is important because such motivation can influence the effects of public income transfers on the distribution of income using a household survey for peru we find that transfer amounts received increase with recipient pre transfer income which contradicts a key prediction of the strong form of the altruism hypothesis but is consistent with exchange we also find that capital market imperfections are likely to be an important cause of private transfers and that social security benefits crowd out the incidence of private transfers

private monetary transfers in rural china are families altruistic monetary transfers between relatives may be motivated by altruism or they may represent payments for services rendered data from a large 1988 household survey are used to test these hypotheses and to study the size and direction of transfers in rural china the analysis suggests that altruism alone cannot explain the observed transfers and that exchange may be involved most of the money flows appear to be transfers from adult children to elderly parents and remittances from migrants child care is likely to be one of the main services that parents render to adult children in exchange for money

tax timing and liquidity constraints a heterogeneous agent model this paper considers the ricardian equivalence hypothesis in a model in which some families face binding liquidity constraints and others do not the source of heterogeneity that generates binding constraints in some families but not in others is shown to be the rate of intergenerational discount in an economy populated by these two types of families a change in tax timing has non ricardian short run effects but many ricardian long run effects this implies that heterogeneous agent models can reconcile some of the conflicting empirical evidence on ricardian equivalence copyright 1993 by ohio state university press

risk sharing within families evidence from the health and retirement study abstract we report strong empirical support for the presence of self interest based risk sharing within extended families in the u s a standard model of self interest based risk sharing predicts that the share of current family income consumed by a child positively depends on that child s permanent income it follows that parental transfers to children that are expected to earn more over the period of risk sharing arrangements should exhibit less sensitivity to the recipient s income fluctuations we test this distinguishing prediction of self interest based risk sharing by exploiting the variation of transfer receipts among siblings observed over 17 years of longitudinal data spanned by the health and retirement study

liquidity constraints as a cause of moonlighting an investigation of whether some workers respond to liquidity constraints by moonlighting is carried out using a unique large data set it is found that workers are more likely to moonlight if 1 they have low current incomes relative to their educational attainment and 2 they plan to purchase a house or a car during the next six months

do the rich save more a new view based on intergenerational transfers do richer people have higher saving rates the short run and long run consumption functions have different answers to this important question which results in an important consumption puzzle that was a focus of macroeconomic research in the 1950s and 1960s in a recent empirical contribution dynan skinner and zeldes 2004 revive this old question and make this consumption puzzle more intriguing by showing that the average propensity to consume decreases not only with current income but also with lifetime income this paper provides a model that helps resolve this puzzle from an intergenerational perspective

private intergenerational contact in france and the demonstration effect this study analyses motives for intergenerational contact from adult children to their middle aged parents if these transfers may be explained either by altruism or by exchange we mainly focus on the demonstration effect where households take care of their own parents in order to elicit a future support from their children we test the model using a cross sectional survey from 1992 about private transfers in france according to the data the presence of children increases the amount of visits that respondents provide to their parents and the econometric results still hold after controlling for unobserved familial heterogeneity using fixed effects although this empirical evidence is consistent with the demonstration effect we suggest an alternative interpretation for the positive correlation based on the care of grandchildren

women insurance capital and economic development in rural india in this paper longitudinal data from a national probability sample of rural households in india are used to assess how the traditional migration of women across households via marriage by contributing to consumption smoothing augments the returns to women as human capital and how these returns are affected by economic development propelled by agricultural technical progress the estimates confirm earlier findings based on more geographically confined data from india that interhousehold financial transfers play a small but significant role in contributing to consumption smoothing such transfers appear to be more responsive to a households fluctuations in earnings that are loans and this responsiveness is significantly augmented in households with more informal connections to other households that arise due to the marriages of sons who stay in the parental household and daughters who migrate the estimates also suggest that technical change presumably because of its impact on the returns to experience on earnings levels and on risk assessment represents a threat to the traditional household and in particular to marriage based risk pooling the results indicate that the transformation of traditional agriculture through technological change thus extends beyond agricultural practices to the relationships among households and also within households and does not necessarily lead to great equality by sex in the intrahousehold distribution of resources despite the evident normality of equality in intrahousehold resources authors

how responsive are private transfers to income evidence from a laissez faire economy abstract in recent years there has been burgeoning interest in how private transfers respond to household income or transfer derivatives much of it is fueled by the specter of crowding out the more responsive are private transfers the more likely they could be supplanted by expansions in public transfers weakening or destroying the latter s distributive impact yet there is also an emerging consensus that actual transfer derivatives are trivial at least for the united states suggesting that crowding out might loom larger in the minds of some economists than in the data but perhaps crowding out is a fait accompli in the united states accordingly we focus on the philippines which has a much smaller public sector we also pursue a novel theoretical angle which generates a sharp non linear relationship between private transfer receipts and income in the form of a spline our empirical work applies recently developed estimation techniques that treat the spline s threshold as an unknown parameter and they uncover transfer derivatives much larger than conventional methods reveal notably private transfers patterns are consistent with altruistic preferences effective risk sharing or both in accord with theoretical predictions however strong transfer derivatives prevail only among low income households our findings suggest that attempts to aid the poor could be thwarted by private responses which leak benefits to richer households in the form of lighter burdens of support for less fortunate kin so the problems that operative private transfers create for public redistribution policy first pointed out by becker and barro over 25 years ago do indeed matter empirically

on the demand for grandchildren tied transfers and the demonstration effect it is argued that parents provide help with housing downpayments in order to encourage the production of grandchildren and that such a subsidization emanates from the bdemonstration effect q a child s propensity to furnish parents with attention and care can be conditioned by parental example parents who desire such transfers in the future have an incentive to make transfers to their own parents in order to instill appropriate preferences in their children this generates a derived demand for grandchildren since potential grandparents will be treated better by their adult children if the latter have their own children to whom to demonstrate the appropriate behavior empirical work indicates behavior consistent with subsidization of the production of grandchildren and the demonstration effect

risk financial markets and human capital in a developing country this paper explores the link between financial market incompleteness and human capital accumulation we examine how child school attendance responds to seasonal fluctuations in the income of agrarian households using panel data from rural india to pinpoint market imperfections we study responses to aggregate and idiosyncratic as well as to anticipated and unanticipated income shocks our main finding is that seasonal fluctuations in school attendance are a form of self insurance but one which does not result in a substantial loss of human capital on average

analysis of private transfers with panel fixed effect censored model estimator abstract understanding private transfer is important for safety net policies because private transfer provides economic benefits similar to those of public programs such as unemployment insurance and pension applying honore s econometrica 60 1992 533 panel fixed effect censored model estimator to korean data we show that private transfer is altruistically motivated and there is a strong crowding out effect of public transfer on private transfer we also find that low income people suffered to different degrees during the financial crisis period of 1997 to 1998 this finding and the crowding out effect may be taken as failures of the korean public transfer programs during the period

sharecropping and the interlinking of agrarian markets one of the often noted features of less developed agrarian economies is the existence of interlinkages among the land labor credit and product markets the landlord is often the supplier of credit he frequently purchases and markets the output of the tenant farmers and often sells raw materials and even consumption goods to his tenant farmers how can this phenomenon be explained what are the welfare consequences of attempts to restrict these practices which often seem to constitute restraints on free trade these are the questions to which this paper is addressed a general set of arguments applicable to both competitive and noncompetitive environments are presented to situations where all the terms of the contract are determined in an optimal way as well as to situations where many of the terms are specified institutionally section i examines interlinked credit and tenancy contracts section ii examines interlinked marketing and tenancy contracts section iii points out the possible interlinking between labor contracts and consumption goods markets and section iv presents the different equilibrium frameworks discussed in the paper such as monopoly monopsony competition and equilibria with surplus labor

the effect of social entitlement programs on private transfers new evidence of crowding out working paper 2010 15 september 2010 abstract this paper exploits a natural policy experiment to directly identify the crowding out effects of public transfers on the incidence and level of private transfers the introduction of a large social security program in taiwan is used to estimate the effect of an exogenous increase in government transfer payments to the elderly on the private transfer behavior of their adult children using an instrumental variables strategy that accounts for the endogeneity of receiving public transfers the empirical results show strong evidence of crowding out on the extensive margin the probability of providing a positive transfer and weaker evidence of crowding out on the intensive margin the amount of the transfer conditional on it being positive jel classification h53 h55 h31 key words private transfers crowding out 1 introduction determining the impact of public transfer programs on private transfer behavior is a key issue from both a research and policy perspective if public transfers largely crowd out private transfers then the welfare impact of social redistributive programs will be smaller than perceived economic theory is ambiguous in its predictions about crowding out the altruism model developed in the seminal papers of barro 1974 and becker 1974 predicts essentially complete crowding out the model focuses on transfers from parents to children but can be applied equally well to transfers from adult children to their elderly parents in the model the child s utility is included in an altruistic parent s utility function which gives the parent an incentive to support the child the core of the altruism model is the prediction of redistribution neutrality which posits that the parents will adjust their transfer behavior in response to changes in the child s income for example an increase in the child s income due to welfare subsidies from the government will lower the amount of parental transfers if ricardian equivalence holds and the government subsidy is financed by a tax on the parents income then the parents will reduce their transfer exactly by the tax amount implying complete crowding out in contrast to the altruism model the exchange model of bernheim et al 1985 and cox 1987 argues that a child s services to the parents such as contacts and visits are at least in part financially motivated as the child expects monetary compensation in this model the amount of transfers could be a positive or negative function of the child s income as the child s income increases the opportunity cost of services increases and thus the amount of expected compensation for the services increases in such a setting the relationship between the child s income and the amount of parental transfers is not clear it could be positive if the parents demand for services is inelastic as they would need to increase transfer payments to the child in order to receive the same level of services if this were the case government subsidies would increase the amount of private transfers received and thus there would be no crowding effect on the other hand if the demand for services is highly elastic then parents demand would fall along with monetary compensation which would lead to crowding out 1 as a result of the ambiguous effect of crowding out predicted by theory a relatively large empirical literature has focused on the estimation of both the sign and magnitude of the crowding out effect of public transfer programs however due to data limitations most empirical studies have not been able to directly measure the crowding out effect of public redistribution programs most studies in this literature have attempted to indirectly measure the impact of such programs on beneficiaries by studying the response of private transfers to changes in the recipient s level of income the results from these papers however are not consistent

generational accounts aggregate saving and intergenerational distribution are generational accounts informative about the effect of the budget on the intergenerational distribution of resources and on aggregate saving first the usefulness of generational accounts lives or dies with the strict life cycle model of household consumption second even if the life cycle model holds generational accounts ignore the intergenerational redistribution associated with the government s provision of public goods and services and with intergenerational externalities third generational accounting ignores the effect of the budget on tax and transfer bases and on before tax and transfer quantities and prices that is it does not handle incidence or general equilibrium repercussions

endogenous emergence of credit markets contracting in response to a new technology in ghana abstract access to credit is important for the productivity and overall welfare of farmers in developing countries we present a theoretical framework which shows that a change in the mode of shipping from air to sea in the ghanaian pineapple industry made it profitable for pineapple exporters to provide myopic farmers with both in kind loans to improve productivity and cash loans for consumption smoothing despite being unable to monitor farmers or enforce repayment the innovative theoretical result is that providing farmers with additional cash loans can enforce greater input use without compromising repayment we provide evidence in the form of a case study documenting the dramatic rise of informal credit through contract farming after the switch to sea freight between 1996 and 2001 using this anecdote we argue that credit arrangements can arise spontaneously absent non market interventions to meet market needs even in the absence of proper legal protections for creditors

earnings unemployment and housing in britain this paper models regional earnings and unemployment in the ten regions of great britain between 1972 and 1995 paying particular attention to their interaction and to the important influence of the housing market in contrast to blanchard and katz 1992 1997 for the united states we find less persistence in british regional earnings differentials but greater persistence in regional unemployment rates we find no evidence of a negative effect of the overall unemployment rate on the earnings of men in non manual or women in full time employment however for manual men we find a significant elasticity of around 0 07 comparable with blanchflower and oswald 1994 copyright 2001 john wiley sons ltd

empirical evidence on consumption smoothing and intergenerational transfers in this study i examine empirically intergenerational linkage in terms of resources transfers in the extended family in particular conditional on a household s and its parents or children s liquidity constraints status i look at how far the household can smooth its consumption in face of negative income shocks the permanent income hypothesis postulates that households make their consumption decisions based on their lifetime resources thus their consumption trajectory follows a smooth path in face of shocks to their income however in various tests 8 10 the unconditional form of the hypothesis has been rejected it is conjectured and generally agreed that the rejections of the hypothesis are mainly due to the presence of liquidity constraints i e capital market imperfections see zeldes 22 for a recent empirical investigation and hayashi 12 for an excellent survey moreover the works by cochrane 4 and mace 19 further confer cogency on the liquidity constraints capital market imperfections argument in testing whether households have full consumption insurance or equivalently the existence of complete markets against idiosyncratic shocks they reject their null of the existence of full consumption insurance in some of their tests

taxation and wealth transmission in france abstract this paper studies inter vivos transfers and bequests in france and their relation to the french inheritance law and taxation using administrative records and a national households survey transmission behavior is highly responsive to changes in the fiscal system inter vivos gifts increased after a 1992 law made them partly tax free moreover the probability of giving to children is greater ceteris paribus if parents wealth is taxable for children the probability of receiving a gift over the life cycle increases with their permanent income the amount received increases with current income it increases or bears no relation to permanent income depending on the specification thus we find no direct support for the altruistic nor for the exchange motive these results are compatible with a model where parents transfer to the best endowed child

intergenerational transfers and the accumulation of wealth h t ouseholds acquire wealth from two sources they save out of income they have earned and they receive transfers from other people the first method of wealth accumulation goes under the name of life cycle saving in which people save during their working lives and dissave after retirement the second involves either an inter vivos transfer that is a transfer between living people or a bequest a transfer that occurs at the death of the donor while inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well being of one s descendents few empirical life cycle models reflect these concerns indeed a sharp debate has arisen over the ability of the simple life cycle model to explain observed wealth accumulation understanding the relative sizes of these sources of wealth accumulation affects a variety of issues for example the effects of government debt social insurance public transfer programs estate taxes and incentives for charitable giving depend to some extent on the magnitude and nature of private saving and transfers of wealth analyses of the inequality of wealth may depend on whether most of wealth is earned or received as transfers appropriate policies for encouraging private saving may look rather different depending on whether most saving is to be consumed later in life or passed along to the next generation finally evidence on transfer patterns relates to more fundamental

switching regression estimates of the intergenerational persistence of consumption i introduction since the seminal work of friedman 1957 and modigliani and brumberg 1954 the fact that life cycle consumption is much smoother than income has been established as one of the cornerstones in macroeconomics economic agents are able to optimize on their life cycle consumption via the means of saving and borrowing similarly family dynasties may be able to optimize on their lifetime consumption across generations through the channel of intergenerational transfers however despite strong evidence of the massive intergenerational asset transfers kotlikoff and summers 1981 few studies except perhaps mulligan 1997 1999 and waldkirch ng and cox 2004 1 have explored the intergenerational dynamics of consumption by contrast there is a large body of estimates on intergenerational relationships in income or earnings for the united states and for other countries around the world 2 investigating the intergenerational consumption relationship would complement our knowledge of the relationship of intergenerational income or earnings consumption is a more direct measure of economic well being than income furthermore understanding the intergenerational effects of parental financial transfers on consumption would be helpful for sensible public policy design if parents are transferring resources in various forms including financial transfers in an optimal manner to promote their offspring s overall well being then government transfer programs that target disadvantageous individuals at specific life stages through specific channels e g education financial aids or food stamp programs may replace or crowd out parental inputs without achieving the same optimal effects on the overall well being of these individuals broadly our study is linked to the question of how to interpret parental financial transfers to their adult children 3 financial transfers from parents can occur in the form of inter vivos i e between living persons gifts 4 or bequests 5 6 the literature has debated on whether post education financial transfers are driven by parental altruism or by an exchange arrangement in return for services delivered or expected to be delivered from adult children previous studies have found evidence that inter vivos transfers are consistent with both motives cox 1987 1990 7 yet bequest transfers consistent with neither tomes 1981 wilhelm 1996 mcgarry 1999 showed that an altruistic parent makes inter vivos transfers to ease his child s liquidity constraints therefore strongly related to her current income and arranges bequest transfers in response to the child s permanent income therefore only partially related to her current income our study is more closely linked to the view that treats bequest receipt as a signal of access to credit markets for human capital investments becker and tomes 1986 argued that altruistic parents leave financial bequests to children only after they have made efficient human capital investments in their children under imperfect credit markets there are credit constrained parents who cannot self finance these investments without forgoing own consumption that has an opportunity cost higher than the market interest rate this results in a lower consumption transmission from parents to children in constrained families besides signaling access to credit markets financial transfers including bequests enable a parent to guard his her offspring against any relative downward trending of consumption that arises from relative downward trending of lifetime income thus contribute to a higher degree of persistence in consumption from this perspective the total welfare cost of credit constraints goes beyond what is revealed by education achievement or lifetime income and the benefit of being born in a richer family is not limited to being able to afford elite education this study tests the connection between credit constraint and intergenerational consumption persistence using bequest receipt as the signal of constraint status for the parental households

altruism deficit policies and the wealth of future generations i introduction there is now a substantial body of evidence suggesting that altruistic financial bequests are zero for the vast majority of households 1 other studies seem to indicate that the financial bequests which are made are not likely to be altruistically motivated 2 while this evidence against the importance of altruistic financial bequests seems reasonably convincing it is by no means clear that the importance of altruism per se has been dismissed 3 for example the results reported in altonji hayashi and kotlikoff 1992 tables 14 17 indicate that extended family resources while not perfectly linked to own resources are important for explaining own consumption the authors do not reject the notion that substantial altruistically motivated transfers occur in the u s rather they suggest the altruistically motivated transfers which are made take the form of less than fully efficient human capital transfers to children if most altruistic transfers do take place via educational expenditures how does this affect the ricardian equivalence theorem robert barro 1974 1989 argues the presence of any altruistic transfer is sufficient to guarantee that intergenerational transfers caused by government policy are neutral other forms of intergenerational transfers such as inter vivos gifts to children support of children s education and so on can work in a similar manner therefore the ricardian results will hold even if many persons leave little in the way of formal bequests 1989 41 4 an alternative view however is expressed by allan drazen 1978 he argues if parents possess an insufficient mix of wealth and altruism intergenerational transfers could be exhausted before the efficient level of human capital investment is achieved if explicit or implicit loans between parents and children are not possible then the government may be able to improve welfare by generating intergenerational transfers from children to parents 5 a cut in the parents tax burden and an equal present value increase in the tax on the next generation is equivalent to a government enforced loan at the going market interest rate since educational expenditures are inefficiently low the return on human capital investment exceeds the loan rate therefore parents could put an amount less than the tax cut into their children s education and still leave the children with enough additional income to pay for the future tax increase thus a deficit policy serves to expand the consumption possibility set of the family viewed in this way drazen 1978 514 footnote 7 imagines an argument for a pareto optimal level of public debt issue 6 a third possibility was identified by nerlove razin and sadka 1988 who conduct the most explicit analysis of government transfers in an economy with altruistic but financial bequest constrained households they also find a transfer or implicit loan to parents from their children will make the parents unambiguously better off however they were the first to point out that a deficit policy may lower the welfare of the children although they fail to explain why thus even in the presence of altruistic transfers from parents to children the effect of deficits on the consumption of future generations is far from clear in this paper we wish to clarify the effect of intergenerational transfers on bequest constrained families the next section intuitively explains why a government loan or deficit policy generates an ambiguous effect on the children s consumption even though altruistic parents are fully capable of making both generations better off after the loan we also identify the key structural determinants of the change in the children s wealth due to the loan in section iii we extend the simple model of section ii to a more quantitatively realistic multi period life cycle simulation model of a bequest constrained household the simulation model is then used in section iv to examine how a government intergenerational transfer affects the consumption of each generation under various settings of the key structural determinants identified in section ii