The Motives of Intergenerational Transfer to the Elderly Parents in China: Consequences of High Medical Expenditure

Abstract

The support for the elderly is facing big challenges with the problem of population aging. Transfers from adult children could partly insure elderly parents against low income and high medical expenditure. There are two main motives for transfers in the literature, namely altruism and exchange. Using data from a new household survey of people aged 45 and above in China, we estimate the transfer derivatives with the adjustment of medical expenditure in elderly parents' income. We find a large negative impact of adjusted income on transfers at the lower end of income distribution, which is consistent with the altruistic motive. Evidence on the exchange motive is found only for sons, but not for daughters. In addition, there is evidence on the "exchange-for-service" motive, which interprets transfer as a payment to parents' family services, such as taking care of grandchildren.

Keywords: Transfer derivatives, Medical expenditure, Retirement, Family insurance, China

JEL Classification: D64, H55, J14, O12, P35