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Private Transfers and the Crowding Out Hypothesis: Semiparametric and Threshold Regression Evidence from Four Developing Countries

Author

Listed:
  • Susan Olivia
  • John Gibson
  • Trinh Le

Abstract

This paper investigates whether there is a non-linear relationship between income and the private transfers received by households in developing countries. If private transfers are unresponsive to household income, expansion of public social security is unlikely to crowd out private transfers, contrary to concerns first raised by Barro and Becker. There is little existing evidence for crowding out effects, but this may be because they have been obscured by methods that ignore non-linearities. If donors switch from altruistic motivations to exchange motivations as recipient income increases, a sharp non-linear relationship between private transfers and income may result. In fact, threshold regression techniques find such non-linearity in the Philippines, where 30-80% of private transfers might be crowded out for low-income households [Cox, D., Hansen, B., and Jimenez, E., 2003, How responsive are private transfers to income? Evidence from a laissez-faire economy, Journal of Public Economics.]. To see if these non-linear effects occur more widely, semiparametric and threshold regression methods are used to model private transfers in four developing countries – Papua New Guinea, Indonesia, Vietnam and Cambodia. The results suggest that non-linear crowding-out effects are not important features of transfer behaviour in most of these countries, so expansions of public social security to cover the poorest households need not be stymied by offsetting private responses

Suggested Citation

  • Susan Olivia & John Gibson & Trinh Le, 2004. "Private Transfers and the Crowding Out Hypothesis: Semiparametric and Threshold Regression Evidence from Four Developing Countries," Econometric Society 2004 Australasian Meetings 112, Econometric Society.
  • Handle: RePEc:ecm:ausm04:112
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    Cited by:

    1. Christopher B. Barrett, 2006. "Food Aid’s Intended and Unintended Consequences," Working Papers 06-05, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
    2. N. Leprovost & B. Dubrulle, 2005. "The turbulent dynamo as an instability in a noisy medium," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 44(3), pages 395-400, April.

    More about this item

    Keywords

    Crowding out; Non-linearities; Private transfers; Social security;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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