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How Widespread are Non-linear Crowding Out Out Effects? The Response of Private Transfers to Income in Four Developing Countries

  • John Gibson

    ()

    (University of Waikato)

  • Susan Olivia

    (University of California, Davis)

  • Scott Rozelle

    (University of California, Davis)

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 and other transfer programs 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 in the literature, 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 and after accounting for these there is evidence of serious crowding out, with 30 to 80 percent of private transfers potentially displaced for low-income households [Cox, Hansen and Jimenez 2004, 'How Responsiveare Private Transfers to Income?' 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 - China, Indonesia, Papua New Guinea and Vietnam. The results of our paper suggest that non-linear crowding-out effects are not important features of transfer behaviour in these countries. The transfer derivatives under a variety of assumptions only range between 0 and -0.08. If our results are valid, expansions of public social security to cover the poorest households need not be stymied by offsetting private responses.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/0601.pdf
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Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 06/01.

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Length: 26 pages
Date of creation: 31 Mar 2006
Date of revision:
Handle: RePEc:wai:econwp:06/01
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  1. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, 1995. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," NBER Working Papers 5378, National Bureau of Economic Research, Inc.
  2. Olken, Benjamin A., 2005. "Revealed community equivalence scales," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 545-566, February.
  3. Giorgio Secondi, 1997. "Private monetary transfers in rural china: Are families altruistic?," Journal of Development Studies, Taylor & Francis Journals, vol. 33(4), pages 487-511.
  4. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-46, June.
  5. Cox, Donald & Jakubson, George, 1995. "The connection between public transfers and private interfamily transfers," Journal of Public Economics, Elsevier, vol. 57(1), pages 129-167, May.
  6. Lampman, Robert J & Smeeding, Timothy M, 1983. "Interfamily Transfers as Alternatives to Government Transfers to Persons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(1), pages 45-66, March.
  7. repec:cup:cbooks:9780521012263 is not listed on IDEAS
  8. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics 319., Boston College Department of Economics, revised 12 May 1998.
  9. repec:cup:cbooks:9780521812832 is not listed on IDEAS
  10. 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..
  11. Maitra, Pushkar & Ray, Ranjan, 2003. "The effect of transfers on household expenditure patterns and poverty in South Africa," Journal of Development Economics, Elsevier, vol. 71(1), pages 23-49, June.
  12. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
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