Living arrangement and caregiving expectation: the effect of residential proximity on inter vivos transfer

Informal care by adult children provides important support for frail seniors, yet it is unclear whether this costly service is balanced by parents’ financial transfers. This paper examines how family living arrangements affect parents’ relationship with their children. Specifically, it investigates whether a child’s residence affect parents’ decision in making financial gifts, and whether this relationship is based on their expectation to receive care in the future. Results show that children in closer proximity are more likely to receive transfers from their parents on both the intensive and extensive margins. A closer examination of the effects reveals that the difference can be at least partially explained by the increased likelihood of care provision when a child is living in closer proximity. The findings suggest that today’s residential location could be a signal in indicating a child’s prospect of providing care and thus affects parents’ decision in making financial gifts. It also reaffirms the interdependency between caregiving and residential decisions and calls attention to its roles in shaping intergenerational relationship.