Are Family Transfers Crowded Out by Public Transfers?

Abstract

We give an account of an overlapping-generations experiment with multiple families in which voluntary transfers can take the form of support to the elderly or grants to children. Support to the old is a purely intergenerational (intra-family) transfer, whereas grants to children also involve an element of intra-generational (inter-family) redistribution through a compulsory pension system. Our data show that higher compulsory inter-family transfers lead subjects to place relatively more emphasis on support instead of grants: Grants are crowded out, but support is not significantly affected. The efficiency of voluntary transfers increases, however. Furthermore, if subjects give transfers, they do not use tokens of direct reciprocity; evidence of indirect reciprocity in transfer behavior can only be obtained for the case where compulsory transfers are high.

Keywords: Experiments, with-in family transfers, overlapping generations, redistributive public-pension system, crowding out, reciprocity

JEL Classification: C91, H55