Does a Government Public Transfer Program Crowd Out Intergenerational Transfers?

Government public transfers through welfare programs are widely used to tackle elderly poverty. These programs often influence the level of pre-existing support from family members, and might displace such private support. In this paper, we analyze the effects of a new old-age pension program on intergenerational financial transfers in South Korea. Applying various empirical approaches, we find robust evidence that money transfers from adult children to parents was completely crowded out after the introduction of the public transfer program. We find little evidence for alternative hypotheses for crowding-out effects, such as the effects of endogenous change in living arrangement as a substitute for financial support, the endogenous labor supply of the elderly, and the global financial crisis. The results imply that the effectiveness of government antipoverty programs through public transfers could be dampened by a reduction in intergenerational transfers.