Crowding Out Effects of an Old-Age Pension Program on Intergenerational Transfers:Evidence from South Korea

Governmental public transfers through welfare programs are widely used to tackle elderly poverty. These programs often influence the level of pre-existing supports from other family members, and may crowd out private supports. In this paper, we study the effects of new old-age pension program on intergenerational financial transfer in South Korea. Applying various empirical approaches, we find robust evidence that the pension program completely crowded out financial transfers from adult children to parents. We find little evidence for other alternative hypotheses for crowding out effects such as the effects of global financial crisis and endogenous labor supply of the elderly. The results imply that the effectiveness of governmental antipoverty program through public transfer could be dampened by a reduction in intergenerational transfers.