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Parental Altruism and Inter Vivos Transfers: Theory and Evidence

  • Joseph G. Altonji
  • Fumio Hayashi
  • Laurence Kotlikoff

This paper uses PSID data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism. Specifically, the paper tests whether an increase by one dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child's income results in the parents increasing their transfer to the child by one dollar. This restriction on parental and child transfer-income derivatives is derived for the standard altrusim model augmented to include uncertain and liquidity constraints. These additional elements pin down the timing of inter vivos transfers. The paper's method of estimating income-transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism. The findings strongly reject the altrusim hypothesis. Redistributing one dollar from a recipient child to donor parents leads to less than a 13 cent increase in the parents' transfer to the child -- far less than the one dollar increase implied by altruism.

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Paper provided by Institute for Policy Resarch at Northwestern University in its series IPR working papers with number 95-22.

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Handle: RePEc:wop:nwuipr:95-22
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  1. Blinder, Alan S, 1976. "Intergenerational Transfers and Life Cycle Consumption," American Economic Review, American Economic Association, vol. 66(2), pages 87-93, May.
  2. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," UCLA Economics Working Papers 151, UCLA Department of Economics.
  3. IOANNIDES , Yannis & KAN , Kamhon, 1994. "The Nature of Two-Direction Intergenerational Transfers of Money and Time : An Empirical Analysis," CORE Discussion Papers 1994033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  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. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1985. "The Strategic Bequest Motive," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1045-76, December.
  6. W. G. Gale & J. K. Scholz, . "Intergenerational transfers and the accumulation of wealth," Institute for Research on Poverty Discussion Papers 1019-93, University of Wisconsin Institute for Research on Poverty.
  7. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June.
  8. Ted Bergstrom, 1995. "A Survey of Theories of the Family," Papers _027, University of Michigan, Department of Economics.
  9. David Altig & Steve J. Davis, 1991. "The Timing of Intergenerational Transfers, Tax Policy, and Aggregate Savings," NBER Working Papers 3753, National Bureau of Economic Research, Inc.
  10. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December.
  11. Fumio Hayashi, 1995. "Is the Japanese Extended Family Altruistically Linked? A Test based on Engel Curves," NBER Working Papers 5033, National Bureau of Economic Research, Inc.
  12. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  13. Cox, Donald, 1990. "Intergenerational Transfers and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 187-217, February.
  14. Drazen, Allan, 1978. "Government Debt, Human Capital, and Bequests in a Life-Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 505-16, June.
  15. Blundell, Richard & Meghir, Costas, 1987. "Bivariate alternatives to the Tobit model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 179-200.
  16. Kotlikoff, Laurence J & Razin, Assaf & Rosenthal, Robert W, 1990. "A Strategic Altruism Model in Which Ricardian Equivalence Does Not Hold," Economic Journal, Royal Economic Society, vol. 100(403), pages 1261-68, December.
  17. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
  18. Menchik, Paul L, 1980. "Primogeniture, Equal Sharing, and the U. S. Distribution of Wealth," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 299-316, March.
  19. Cox, Donald & Rank, Mark R, 1992. "Inter-vivos Transfers and Intergenerational Exchange," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 305-14, May.
  20. Sebastian Edwards & Miguel Savastano, 1988. "Latin America's Intraregional Trade: Evolution and Future Prospects," NBER Working Papers 2738, National Bureau of Economic Research, Inc.
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