Economic growth and endogenous intergenerational altruism

The recent literature on the endogenous formation of preferences has emphasized that while some preferences are more conducive to growth than others, economic growth also contributes to the formation of particular tastes [Becker, Gary S. (1996): Accounting for Tastes, Cambridge, Ma.: Harvard University Press]. In this paper, we construct a neoclassical growth model where intergenerational altruism can be endogenously reinforced and entails costly sacrifices on the part of parents to acquire such trait. While the incentives to acquire altruistic traits depend on the economic conditions, in turn altruism determines the level of intergenerational bequests and ultimately the pace of capital accumulation and economic growth. It is shown that intergenerational transfers are driven by a natural degree of altruism at earlier stages of economic growth. Once individuals have satisfied their own physiological constraint in the course of economic development, they devote resources to shaping their altruistic preferences, increasing their social degree of altruism above its natural level. This in turn increases the share of intergenerational transfers and speeds up economic growth.     

私人代际转移动机研究*——基于CHARLS的实证分析

经济学家对代际的物质和时间转移的兴趣引发了人们对转移动机的研究与思考。传统的解释有两种：利他主义与交换互惠。本文利用CHARLS数据，对中国的代际转移动机进行实证研究，发现受传统文化的影响，中国的代际转移更多地表现出利他主义倾向，同时示范效应也有所体现，即个体在照顾父母的同时也在教育自己的孩子赡养父母，以期退休后得到子女的照顾。相对西方国家来说，我国养老金体系的压力较小。但随着老龄化的加剧和生育率的下降，为了缓解未来独生子女赡养双方父母的压力，应当在减少挤出私人代际转移的基础上完善社会保障体系，提高我国老年人口的生活质量。     

Public pensions and growth

This paper investigates the relationship between the size of an unfunded public pension system and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient.     

Intergenerational transfers,demographic transition,and altruism: Problems in developing Asia

This paper develops a three‐period overlapping‐generations model where middle‐aged agents care about not only their own lifetime utility but also their old parents' and children's well‐being. The doubly altruistic agents choose amounts of intergenerational transfers to their old parents and children as well as private savings. The government specifies amounts of public transfers from working adults to the dependents. The model also takes the effects of demographic transition on the burdens of supporting the elderly and children into account. Using 23 countries' data from the National Transfer Accounts (NTA ), we estimate the degrees of filial and parental altruism and adjust them for their respective life expectancy and fertility rates. The findings suggest that people in developing countries are more parentally altruistic than those in developed ones while the adjusted degree of filial altruism tends to be low in developing Asia. Our welfare analyses reveal that the developing Asian countries must introduce more comprehensive public welfare programs for the elderly to maximize social welfare. Moreover, their low adjusted degree of filial altruism may trap the developing Asian countries at the low levels of public old‐age support and social welfare as the further demographic transition ensues.     

TOUGH LOVE AND INTERGENERATIONAL ALTRUISM*

This article develops and studies a tough love model of intergenerational altruism. We model tough love by modifying the Barro‐Becker standard altruism model in two ways. First, the child’s discount factor is endogenously determined, so lower childhood consumption leads to a higher discount factor later in life. Second, the parent evaluates the child’s lifetime utility with a constant high discount factor. Our model predicts that parental transfers will fall when the child’s discount factor falls. This is in contrast with the standard altruism model, which predicts that parental transfers are independent of exogenous changes in the child’s discount factor.     

INEQUALITY OF OPPORTUNITY IN EARNINGS AND CONSUMPTION EXPENDITURE: THE CASE OF INDIAN MEN

The paper associates inequality of opportunities with outcome differences that can be accounted by predetermined circumstances which lie beyond the control of an individual, such as parental education, parental occupation, caste, religion, and place of birth. The non‐parametric estimates using parental education as a measure of circumstances reveal that the opportunity share of earnings inequality in 2004–05 was 11–19 percent for urban India and 5–8 percent for rural India. The same figures for consumption expenditure inequality are 10–19 percent for urban India and 5–9 percent for rural India. The overall opportunity share estimates (parametric) of earnings inequality due to circumstances, including caste, religion, region, parental education, and parental occupation, vary from 18 to 26 percent for urban India, and from 16 to 21 percent for rural India. The overall opportunity share estimates for consumption expenditure inequality are close to the earnings inequality figures for both urban and rural areas. The analysis further finds evidence that the parental education specific opportunity share of overall earnings (and consumption expenditure) inequality is largest in urban India, but caste and geographical region also play an equally important role when rural India is considered.     

Human Capital, Heterogeneity and Estimated Degrees of Intergenerational Mobility

We study the parental investment model of intergenerational mobility, where heterogeneity in 'innate' earnings ability and parents' altruism rate is explicitly modelled. We show that heterogeneity increases the difficulty of detecting the existence of borrowing constrained families. Conversely, the presence of heterogeneity means that economic and linear statistical models of inheritance generate similar intergenerational data on consumption and earnings. We also suggest that nay cross-country differences in intergenerational earnings mobility are more readily interpreted according to the heterogeneity of inherited ability, rather than optimal family responses to country-specific institutions for accumulating human capital.     

Bequests, Inter Vivos Transfers, and Wealth Distribution

This paper constructs a heterogeneous agent overlapping generations model with bequests and inter vivos transfers. In the model, households in the same family line behave strategically to determine their consumption, working hours, gifts, and savings. Calibrating the model to the U.S. economy, the paper measures time preference and parental altruism consistent with the economy's capital-output ratio and the size of intergenerational transfers. The model with intergenerational transfers better explains, although not fully, the wealth distribution of the United States. The paper also analyzes the effects of government policy changes on wealth accumulation, distribution, and social welfare. Journal of Economic Literature Classification Numbers: D31, D64, D91, H31.     

Family Background and Economic Status in Finland

The importance of family background for economic outcomes is analyzed, using a Finnish data set. The estimates for intergenerational and sibling correlations in earnings are comparatively low. By estimating the magnitude of family influence conditional on parental earnings, children with poor parents are found to have lower intergenerational elasticities, while the sibling resemblance is higher. Children with rich parents have higher intergenerational elasticities and the sibling resemblance is also higher, except for daughters. The results also indicate that the largest share of the intergenerational correlation is transmitted through observed characteristics, such as education and, in particular, occupation.
JEL classification : D 1; D 3; J 6     

Agricultural Roots in Intergenerational Transfers in China

Economists have been interested in the motivations of intergenerational transfers, for different motivations affect the effectiveness of anti-poverty public transfers. However, one’s motivation is largely shaped by culture and social conventions. This paper sheds light on the influence of rice cultivation in intergenerational transfers in China. This is also the first time that economists consider cultural factors in the study of intergenerational transfers. Cultivating rice requires elaborate irrigation systems and large amounts of labor input so that rice farmers have to cooperate extensively with their neighbors, which has gradually shaped people’s value to be more inter-dependent. Based on micro-level data from CHARLS and sub-national rice data from China, our empirical results show strong evidence that individuals from rice regions are more likely to provide economic support for their parents. A one-percentage point increase in the share of rice in the total grain planting area will raise transfer incidence by 0.2–0.4 percentage points, and rice region residents transfer on average 300–400 yuan more in 2011 and about 1,000 yuan more in 2013 to their parents than those from wheat regions. Meanwhile they are more inclined to rely on their adult children for elderly support. Urban citizens are less affected. Using instrumental variable estimation, we are able to prove the effect is causal. With future continued deepening of population aging in China, relying on children for old age support may become more and more unrealistic, the government needs to coordinate the relationship between public transfer and private transfer to ensure the quality of life for the elderly.     

Social Security and Growth in an Altruistic Economy

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.     

Intergenerational transfers and demographic transition

This paper presents an analysis of demographic transition based on the endogenous evolution of intergenerational transfers along an economy's endogenous path of development. Two-period-lived agents belonging to overlapping generations choose optimally their desired levels of consumption and fertility, together with their desired sizes of transfers to both parents and children. Parents are more efficient than children in producing output, but some parental time must be devoted to child-rearing. At low levels of development, fertility is high and the flow of net intergenerational transfers is from the young to the old. At high levels of development, fertility is low and the flow of net transfers is from the old to the young. These results accord strongly with empirical observations and the analysis may be seen as formalising, for the first time, a long-standing and well-respected hypothesis in the demographic transition literature.     

Intergenerational transfers and the social discount rate

This paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost-benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource. Provided that there are no distortions in capital markets and that all agents hold perfect foresight, cost-benefit techniques will result in a Pareto efficient resource allocation if the discount rate is set equal to the market rate of interest. But since the path of the interest rate depends on the level of intergenerational transfers, cost-benefit techniques do not ensure a socially desirable distribution of welfare between generations; a social optimum will result only if intergenerational transfers are properly chosen and enforced. Decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations, not simply their personal descendants. In a world where intergenerational transfers are non-optimal, second-best policy-making may imply a constrained optimum that is inefficient. Together, these findings suggest that cost-benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations.     

HOW ARE UPSTREAM TRANSFERS DETERMINED? NEW EVIDENCE FROM SOUTH KOREA

Exploiting new data from South Korea on intergenerational transfers made in regular and irregular intervals, I examine what determines and motivates upstream transfers. The results indicate that regular transfers are largely motivated by altruism, but that irregular and in‐kind transfers are unresponsive to parental economic need. The findings imply that public old‐age support would crowd out regular transfers to some extent. It is also found that roles are divided among siblings in supporting the elderly parents: the eldest married son is likely to transfer regularly and the most, whereas the other siblings transfer irregularly or in‐kind.     

Family Transfers Involving Three Generations

Most models of family transfers consider only two generations and focus on two motives: altruism and exchange. They also assume perfect substitution between inter-vivos downward transfers and bequests. Based on French evidence, we show that parent-to-child transfers belong to three distinct categories (investment in child's education, financial assistance, wealth transmission), and advocate a three -generation framework. Thus, transfer behavior of parents toward their children is strongly influenced by the behavior of their own parents. There is also some evidence of the Cox and Stark demonstration effect: parents help their own parents, expecting to receive comparable support from their children. Such behavior can be regarded as indirect reciprocity : the beneficiary does not give back to the initial giver but to a third person of another generation.
JEL classification : D 10; D 31; D 63; D 64     

TRANSFERS FROM MIGRANTS TO THEIR CHILDREN: EVIDENCE THAT ALTRUISM AND CULTURAL FACTORS MATTER

This paper focuses on the determinants of financial inter vivos transfers by migrants living in France in 2003 to their adult children. From a theoretical viewpoint, such transfers may be explained either by altruism or by exchange. While parents would direct their assistance to their less well off children under altruism, support should be channeled to children who live nearby their parents under the exchange motive. We assess the relevance of these two motives using the French PRI survey. Unequal sharing is frequently observed and children are more likely to receive financial transfers when they are in poor circumstance, but not necessarily when living in proximity to parents. We also emphasize the role of cultural factors as determinants of the parental allocation among children. Muslim parents, in particular, are more likely to make transfers to sons than to daughters.     

Intergenerational Altruism and the Environment

We construct an overlapping generations model of pollution externality in which individuals are altruistically linked to their offspring as in Barro (1974). It is shown that steady-state consumption may be a decreasing function of the intergenerational degree of altruism. Despite individuals' altruism, the competitive equilibrium is not optimal. We thus study the social optimum and show that it can be decentralized.
JEL classification: D 62; D 64; D 91     

Family Altruism and Incentives

This paper characterizes the pattern of intergenerational transfers that emerges in an altruistic model of the family when children's effort is explicitly made endogenous and parents have imperfect information on the stochastic income realizations of their children. It is shown that, if parents can credibly commit to a pattern of transfers, they will choose not to compensate children in bad outcomes as much as predicted by the standard (no uncertainty, no asymmetric information) dynastic model of the family. In this context, Ricardian equivalence holds whenever non‐negativity constraints are not binding.     

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.     

Living arrangements of the elderly in China: evidence from the CHARLS national baseline

Declining fertility in China has raised concerns about elderly support, especially when public support is inadequate. Using rich information from the nationally representative China Health and Retirement Longitudinal Study (CHARLS) baseline survey, we describe the patterns of current living arrangements of the Chinese elderly and investigate their determinants and correlation with intergenerational transfers. We find that roughly 41% of Chinese aged 60 and over live with an adult child; living with a male adult child being strongly preferred. However another 34% have an adult child living in the same immediate neighborhood and 14% in the same county; only 5% have an adult child with none of them living in the same county. At the same time, a large fraction of the elderly, 45% in our sample, live alone or with only a spouse. In general, women, those from western provinces, and those from rural areas are more likely to live with or close to their adult children than their corresponding counterparts, but different types of intergenerational transfers play a supplementary role in the unequal distribution of living arrangements. Among non-co-resident children, those living close by visit their parents more frequently and have more communications by other means. In contrast, children who live farther away are more likely to send financial and in-kind transfers and send larger amounts.