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Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam

  • Juergen Jung

    ()

    (Department of Economics, Towson University)

  • Chung Tran

    ()

    (Research School of Economics, The Australian National University)

In this paper we argue that the strategic interaction between the labor supply decision of the elderly and private transfers from their children lowers the opportunity cost of leisure of the elderly. This in turn magnifies the crowding-out effect of public pensions on the labor supply of the elderly. We show that this mechanism has implications for evaluating the crowding-out effect of public pensions in developing countries. That is, a misspecified econometric model that does not control for the endogeneity of private transfers leads to a biased estimate of the crowding-out effect of public pensions. Using data from a household survey in Vietnam we find that the effect of public pensions on the probability of retirement is 2.5 times larger when explicitly accounting for the interaction between private transfers and the labor supply decision of elderly individuals.

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File URL: http://www.towson.edu/cbe/economics/workingpapers/2009-01.pdf
File Function: First version, 2009
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Paper provided by Towson University, Department of Economics in its series Working Papers with number 2009-01.

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Length: 44 pages
Date of creation: Sep 2009
Date of revision: Oct 2009
Handle: RePEc:tow:wpaper:2009-01
Contact details of provider: Postal: Towson, Maryland 21252-0001
Phone: 410-704-2959
Fax: 410-704-3424
Web page: http://www.towson.edu/cbe/economics/
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  1. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
  2. Cox, Donald C & Jimenez, Emmanuel, 1992. "Social Security and Private Transfers in Developing Countries: The Case of Peru," World Bank Economic Review, World Bank Group, vol. 6(1), pages 155-69, January.
  3. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-66, December.
  4. Cameron, Lisa A. & Cobb-Clark, Deborah A., 2001. "Old-Age Support in Developing Countries: Labor Supply, Intergenerational Transfers and Living Arrangements," IZA Discussion Papers 289, Institute for the Study of Labor (IZA).
  5. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, vol. 86(1), pages 129-146, April.
  6. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
  7. Donald Cox & Emmanuel Jiminez, 1993. "Private Transfers And The Effectiveness Of Public Income Redistribution In The Philippines," Boston College Working Papers in Economics 236, Boston College Department of Economics.
  8. Chung Tran & Juergen Jung, 2007. "The Extension of Social Security Coverage in Developing Countries," Caepr Working Papers 2007-026, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  9. Lisa Cameron & Deborah Cobb-Clark, 2002. "Old-age labour supply in the developing world," Applied Economics Letters, Taylor & Francis Journals, vol. 9(10), pages 649-652.
  10. Donald Cox & Emanuela Galasso & Emmauel Jiminez, 2006. "Private Transfers in a Cross Section of Developing Countries," Working Papers, Center for Retirement Research at Boston College wp2006-1, Center for Retirement Research, revised Jan 2006.
  11. Luisa Fuster & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "Elimination of Social Security in a Dynastic Framework," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 113-145.
  12. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-46, June.
  13. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  14. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 1999. "Social Security in an Overlapping Generations Economy with Land," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 638-665, July.
  15. Deborah Cobb-Clark & Lisa A Cameron, 2005. "Do Coresidency with and Financial Transfers from Children Reduce the Need for Elderly Parents to Work in Developing Countries?," CEPR Discussion Papers 508, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  16. Hurd, Michael D, 1987. "Savings of the Elderly and Desired Bequests," American Economic Review, American Economic Association, vol. 77(3), pages 298-312, June.
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