Private and Familial Transfers

Andrew Mason

with assistance of

Nicole Mun-Sim Lai

Outline

• Describe the methods

• Present illustrative results

• Identify problems that need to be addressed

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.

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).

Familial Transfers (Inflows) as a Percentage of Total Consumption, Taiwan

1979 1998

Inter-household 5% 6%

Intra-household 66% 55%

Bequests Perhaps about 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).

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

Per Capita Inter-Household Transfers, Taiwan, 1998, Nominal

-40

-30

-20

-10

0

10

20

30

40

0 10 20 30 40 50 60 70 80 90Thou

sand

s

Age

NT

$

Inflows 98

Outflows 98

Net 98

Aggregate Inter-Household Transfers, Taiwan, 1998, Nominal

-15

-10

-5

0

5

10

0 10 20 30 40 50 60 70 80 90Bil

lio

ns

Age

NT

$

Inflows 98

Outflows 98

Net Inter-Household Transfers to Consumption, Taiwan

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0 10 20 30 40 50 60 70 80 90

Age

Rat

io

(Tra

nsf

ers/

Co

nsu

mp

tio

n)

1998, Inter

1979, Inter

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

Net Inter-Household Transfers to Consumption, Taiwan

0

10

20

30

40

50

60

70

1979 1998

Year

Ag

e

-0.06

0.09

0.08

-0.06

Inter-household Transfers:Issues• Reporting errors and absence of

aggregate controls

• Distinguishing inter-household transfers from capital transfers

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.

~ ~ ~ ~( , ) ( , ) [ ( , ) ( , )]fr l gh h h hi j c i j y i j i j

Intra-household Transfers

~

~

~

~

(1, ) - net intra-household transfers for the head

( , ) - net intra-household transfers for non-heads

( , ) - consumption by non-heads

( , ) - labor income by non-heads

( , ) - net pu

frh

frh

h

lh

gh

j

i j

c i j

y i j

i j

blic transfers to non-heads

for individual i in household j; head is i=1.

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.

~ ~ ~ ~( , ) ( , ) [ ( , ) ( , )]fr l gh h h hi j c i j y i j i j

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:

~2

(1, ) ( , )jN

fr frh h

i

j i j

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.

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.

Per Capita Intra-Household Transfers, Taiwan, 1998, Nominal

-250

-200

-150

-100

-50

0

50

100

150

200

0 10 20 30 40 50 60 70 80 90

Thou

sand

s

Age

NT$

inflows 1998

outflows 1998

Aggregate Intra-Household Transfers, Taiwan, 1998, Nominal

-100

-80

-60

-40

-20

0

20

40

60

80

0 10 20 30 40 50 60 70 80 90

Bill

ion

s

Age

NT

$

inflows 1998

outflows 1998

Net Intra-Household Transfers to Consumption, Taiwan

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

0 10 20 30 40 50 60 70 80 90

Age

Rat

io

(Tra

nsf

ers/

Co

nsu

mp

tio

n)

1998

1979

Net Intra-Household Transfers to Consumption, Taiwan

0

10

20

30

40

50

60

70

1979 1998Year

Ag

e

0.61

-0.43

-0.68

0.66

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

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

Education Transfers

• Transfer inflows:

• Transfer outflows:

( , ) ( , )fre fei j C i j

( , ) ( ) ( , )

( ) ( ) / ( )

fre e tax

e fe tax

i j tax j y i j

tax j C j y j

Education Transfers

( , ) - Private educational consumption

( , ) - Private transfer inflows for education

( , ) - Private transfer outflows for education

( ) - Tax rate for education

( , ) - Taxable in

fe

fre

fre

e

tax

C i j

i j

i j

tax j

y i j

come

for individual i in household j.

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.

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.

Source: Maliki 2004.

Familial Education Transfers (Inflows) by Age, Indonesia.

Source: Maliki 2004.

Familial Education Transfers (Outflows) by Age, Indonesia.

Health Transfers per Month, Thailand 2002

-250

-200

-150

-100

-50

0

50

100

150

200

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85+

Age

Per

cap

ita

tran

sfer

s (b

aht)

Inflows

Outflows

Net Transfers

Monthly Health Transfers Thailand 2002

-200

-150

-100

-50

0

50

100

150

200

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85+

Age

Per

cap

ita

tran

sfer

s (b

aht)

Inflows

Outflows

Net Transfers

Note: Ouflows are taxes on income (wages, profits, property income, and transfer income).

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.

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

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.

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.

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.

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;

Complexities

• Sharing rules for intergenerational transfers– Eldest son– Equal division– Other?

• Estate taxes– Bequests – Other capital transfers

Complexities

• Other Capital Transfers– Estate tax avoidance– Other inter vivos capital transfers

• Dowry • Bride price• Fancy wedding• Help with house

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)

( , ) ( 1, 1) / ( , ) for *hl a t H a t H a t a a

Household Survival Rate, Taiwan, 1978-1998

0.700

0.750

0.800

0.850

0.900

0.950

1.000

40 50 60 70 80 90

Age

Pro

po

rtio

n s

urv

ivin

g o

ne

year

Cumulative Survival, Taiwan, 1978-1998

0.000

0.200

0.400

0.600

0.800

1.000

1.200

40 50 60 70 80 90

Age

Pro

po

rtio

n s

urv

ivin

g

fro

m a

ge

50

NTA Bequests - Outflows

Survival of cohort wealth:Survival of households:Correlation between

wealth and survival: Coefficient of variation for

wealth:

Ah

( , )hl a t

( , ) ( , ) ( , )(1 ( , ))A h h hAh Al a t l a t CV l a t l a t

ACV

( , )Al a t

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

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

Other Issues

• Estate taxes

• Other capital transfers