Crowding out or crowding in?
Intergenerational support regains attention in course of population aging. This paper focuses on the relationship between private and public financial transfers to and from the elderly. Based on German data we find that the giving of private transfers is influenced by public transfers. The close link between public transfers to the elderly and the financial support they give to others represents an inefficient backflow of pay-as-you-go financed pensions to the young generation. This mechanism can be interpreted as a private compensation device for the generations. We can also show that at the same time the receipt of public transfers by the elderly crowd-out private financial support they would have received otherwise in the German welfare state.
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