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5

Intergenerational Transfers

Trends in the ratio of workers to retirees are the tea leaves of policy making for aging populations. Armed with knowledge of age-related behaviors and age-defined benefits in a society, policy makers and commentators alike attempt to read shifts in the relative size of broad age groups for their public policy implications. As more people retire at ever earlier ages, their consumption must come from current output produced by those who work—by either transfer of assets (i.e., claims on output), private/private transfers, or collective wealth schemes (see Thompson, 1998). Of particular concern is whether the well-being of an expanding older population can be secured only at the expense of burgeoning public expenditures (see Chapter 4). Public costs are incurred through a variety of programs providing health care, housing, and financial security for retirees. Whether funded from general tax revenues or mandatory worker contributions, these programs are inherently structured transfers that redistribute resources from workers to elderly nonworkers in a society. Examples of such programs in the United States include Social Security, Medicare, and Medicaid. Comparably structured programs exist throughout Western Europe, Japan, and some other middle-income countries (e.g., Korea, Chile, and Mexico), with variations on the general theme seen in other countries as well (such as Singapore's Central Provident Fund). As noted above, however, publicly funded transfer programs are not the only source of support for the aged, even in developed countries. To varying degrees across societies and over time, the state, the marketplace, and the family have contributed to the support and care of older persons (Lee, 1994b; Soldo and Freedman, 1994).



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Page 155 5 Intergenerational Transfers Trends in the ratio of workers to retirees are the tea leaves of policy making for aging populations. Armed with knowledge of age-related behaviors and age-defined benefits in a society, policy makers and commentators alike attempt to read shifts in the relative size of broad age groups for their public policy implications. As more people retire at ever earlier ages, their consumption must come from current output produced by those who work—by either transfer of assets (i.e., claims on output), private/private transfers, or collective wealth schemes (see Thompson, 1998). Of particular concern is whether the well-being of an expanding older population can be secured only at the expense of burgeoning public expenditures (see Chapter 4). Public costs are incurred through a variety of programs providing health care, housing, and financial security for retirees. Whether funded from general tax revenues or mandatory worker contributions, these programs are inherently structured transfers that redistribute resources from workers to elderly nonworkers in a society. Examples of such programs in the United States include Social Security, Medicare, and Medicaid. Comparably structured programs exist throughout Western Europe, Japan, and some other middle-income countries (e.g., Korea, Chile, and Mexico), with variations on the general theme seen in other countries as well (such as Singapore's Central Provident Fund). As noted above, however, publicly funded transfer programs are not the only source of support for the aged, even in developed countries. To varying degrees across societies and over time, the state, the marketplace, and the family have contributed to the support and care of older persons (Lee, 1994b; Soldo and Freedman, 1994).

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Page 156 Most of the other chapters in this volume address broad public policy concerns, such as meeting the health care needs of the aged or providing old-age financial security by combining individual savings, market annuities, and public pensions. In a departure from that approach, this chapter focuses on the whole of the family transfer system that disburses privately held resources across generations of kin for many of the same purposes served by public programs. While parents provide children with a range of in-kind services, such as shared food, housing, care services, and financial assistance, both during their lifetime and by bequest, adult children often provide elderly parents with comparable resource transfers. The extent of the latter transfers vary across countries: they are normative throughout Asia (Hermalin, 1997) and Southern Europe (Glaser and Tomassini, 1999); limited and largely responsive to parental health shocks or widowhood in the United States and the United Kingdom (Wolf, 1994a; McGarry and Schoeni, 1999); and rare in Scandinavian countries. 1 Regardless of cultural, institutional, and behavioral differences across countries, however, family transfers, including emotional and affective support, are important to the well-being of older persons. The demographic forces that give rise to aging populations also transform the structure of the family. With declines in the rates of both fertility and old-age mortality, the number of living generations in a family increases (Watkins et al., 1987) even as the number of same-generation kin declines. In silhouette, the vertically extended family evolves from the pyramid created by regimes of high fertility and mortality to the narrow, elongated family structures observed in developed countries today (Bengtson and Silverstein, 1993). The elongated family structure concentrates obligations for elder care and support among fewer kin in descending generations of a family. In most countries, the division of labor between the public and family transfer systems is rationalized by long-standing convention, rather than by concerns for efficiency or claims of specialized competency. As a result, interactions between the two broad types of transfer systems define many of the more important policy issues for an aging population. Specifying how transfers from one system affect the flow or volume of resources from the other, however, is seldom straightforward. Increasing inheritance taxes, for example, may “repay” public transfers in the aggre 1In the poorest countries, public transfer programs are rare. Where they exist at all, such benefits are usually restricted to former government workers. Older persons have few options for transferring resources across their own life cycle through private financial markets or participation in private pensions. Surviving adult children are the singular means of insuring against the uncertainties of old age, and family transfers largely determine the well-being of older persons.

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Page 157gate, but over time discourage family care for elderly kin. Alternatively, public care services may prompt a family to redirect its efforts to previously unattended areas of support; for example, adult children may reduce the frequency of their instrumental support but increase their affective support for frail parents. Under this scenario, the parent's overall quality of life might improve, but the net effect for the public sector would be to increase the total volume and cost of publicly financed care services. Within-country studies can make only limited contributions to a policy agenda focused on the interactions between transfer systems or the efficacy and efficiency of the welfare produced for older persons under a given model. Even the richest of domestic datasets have limited utility for pursuing this agenda. There are several reasons for this. The first, and most obvious, is that with few exceptions (e.g., differences in the generosity of Medicaid benefits across U.S. states), transfer policies within a country are usually standardized. Most national policies dictate, for example, that all workers of a given age from a given sector with comparable work histories receive the same government-funded old-age pension. Cross-national research provides opportunities to relate variations in institutional arrangements to the distribution of attributes that determine benefit eligibility or benefit levels (e.g., sector of employment for government pensions) and the distribution of the old-age welfare produced (e.g., postretirement income security) in a population. In addition, within a given country, the legacy of a unique cultural heritage is imprinted on the division of labor between the state and family transfer systems. Because of this confounding, policy makers cannot reliably anticipate the responsiveness of family transfer behaviors to changes in the design of programs benefiting the older segment of the population. This chapter considers how inter generational transfer issues frame many of the important public policy questions in both developed and developing countries. We begin by posing a number of policy questions whose answers require novel ways of conceptualizing and producing relevant data. We then view intergenerational transfers from a macroeconomic perspective that focuses on flows of resources between generations. The discussion explores the directionality of wealth flows and considers how they may shift with changes in economic development. The third section addresses measurement issues involved in the collection of data on intergenerational transfers, examining the complexities of kin networks and suggesting which data should optimally be collected. The chapter then examines efforts to model and project family dynamics, including changes in such variables as kin availability, living arrangements, and changing family structures, factors that will assume increasing importance for policy making as societies age. Both micro- and macro-simulation procedures may be useful tools in gauging future policy needs.

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Page 158Next we review research gaps in the area of family transfers, focusing in particular on the benefits and shortcomings of the macro and micro perspectives. Finally, we offer recommendations regarding new data and studies that might permit a synthesis of these two perspectives. POLICY CONSIDERATIONS The well-being of older persons depends to a large extent on the content and volume of an intricate set of transfer systems in which people are engaged during their lifetimes. Interactions between public and family transfer systems define many of the important policy issues for aging populations. Yet, as noted earlier, specifying how transfers from one system affect the flow of resources from the other is not straightforward. Along these lines, a number of important policy questions arise. 1. Do state-financed programs for the elderly drive out or reduce private/family efforts? If so, at what price to the family or the state? Alternatively, do state transfers magnify the effects of family transfers? 2. To what extent does the potential for bequests create incentives for transfers from adult children to elderly parents? In countries with significant disincentives for bequests (e.g., hefty inheritance taxes), are adult child-to-parent transfers of space and time of the same magnitude, prevalence, and duration as in countries where bequests have the potential to repay late-life care and assistance transfers from children? Related to this is the question of whether parental wealth (ownership of land, property, savings) or prior investments in offspring “buy” family support in old age. Does parental wealth create comparable transfer incentives across cultures? To what extent are incentives for children to repay their parents for human capital investment sensitive to tax policies and to state-provided service systems? 3. Absent housing constraints, do older persons and their adult children universally buy more household privacy and autonomy as wealth increases? (See Schoeni, 1998.) Does the state implicitly subsidize this preference by producing more in-home services for older persons or bearing the costs of a decaying housing stock? 4. What are the full costs of caregiving to the caregiver and to the state? Providing services to elderly parents entails costs, both real and opportunity. These costs are usually estimated very crudely at a point in time with average market wages or replacement costs for a given service. But caregiving also may have longer-term costs that differ across countries. Depending on family leave, job protection, and pension policies, work interruptions for caregiving may not only reduce current wages, but also curtail lifetime earnings and reduce individual savings and accrual rates

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Page 159 in pension systems. Does the state eventually absorb the costs of family caregiving through later-life income replacement programs or public services? Alternatively, are the costs of caregiving offset by transfers from other kin to the caregiver (e.g., financial transfers from siblings) or, as Stark (1995) suggests, do caregivers as they age have stronger claims on services from their own children because of “patterning”? 5. Are preferences for investing in the human capital of offspring so strong as to thwart policy initiatives to encourage greater savings in midlife or consumption of resources to buy care or financial security in late life? For example, will the modest university fees now being levied in the United Kingdom appreciably reduce savings for old age? To what extent are preferences for human capital investment at the expense of individual consumption or savings culturally determined or responsive to policy? Assuming a constant rate of increase in life expectancy at age 60 or 80 and a continuation of current behavioral parameters, at what age would resource flows from young to old dominate under stylized versions of alternative transfer policies in developed countries? 6. How do policies that affect early-life demographic decisions in turn affect late-life behaviors? Demographic regimes and cohort histories imprint on family structure for subsequent decades and are a significant source of variation across countries (Henretta et al., 1997). For individuals, early-life choices ultimately constrain transfer options in later life. Beyond simple structural effects (e.g., childless women have a zero probability of living with offspring, while higher fertility increases the odds of coresidence), the effects of timing factors, such as age at marriage and at first and last birth, may operate through coincident life-cycle staging across generations of a family. Age of offspring at parental retirement, at death of first parent, or at own childbearing may encourage or discourage transfers to elderly parents and affect the magnitude of the transfer. Comparative research on the endogeneity of early-life demographic decisions (e.g., quality of the marriage pool, timing of fertility, childlessness) with late-life transfer outcomes should reveal variations in a range of policy variables within and across countries. A richer understanding of these issues requires a complex research agenda that incorporates distinctions among transfer currencies, providers and provider motivations, and the complete option set for both public and private transfers. INTERGENERATIONAL TRANSFERS, ECONOMIC WELFARE, AND TRANSFER INSTITUTIONS Policy makers have an array of options for broadening the resource base that supports older nonworkers. Among these are creating incentives that encourage individuals to transfer more of their own resources

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Page 160from mid- to late life through private savings, increasing the length of work life by penalizing early retirement, and encouraging transfers of financial assistance or help across generations of the family. Each of these options conveys costs and benefits for the elderly individual, his/her family, and the society. Over the past two decades, economic demographers have developed simple and elegant methods for displaying the societal implications of alternative policy responses to an aging population. The key data inputs for such models are age-specific per capita or per household measures of aggregate consumption, earnings, transfers between and within families, tax payments, and public transfer receipts. These age-specific measures, summed across individuals of each age or households headed by persons of each age, yield familiar aggregate measures of consumption, labor income, and so on that appear in conventional national income accounts. The aggregate age-specific measures are derived from a variety of underlying sources, including survey data on consumer expenditures, labor earnings or intrafamily transfers, and administrative records of tax payments and beneficiary payments. (See, for example, Lee, 1994a, for a description of data sources used to construct such measures for the United States.) The main requirement is that the underlying data sources have information on age and household structure along with the relevant economic measures. The intellectual origins of this line of research can be traced to a seminal paper by Samuelson (1958) that introduced the so-called “overlapping generations” model. This model uses a highly stylized demographic structure in which people live for two periods as “young” workers and “old” retirees. In any given period, the population is made up of the overlap of surviving members of the generation born during the last period, who are now old, and those born in the current period, who are now young. Arthur and McNicoll (1978) incorporated more realistic demography into this model by assuming that both time and age are measured as continuous variables, that the individual life span is finite and subject to age-specific mortality risks, and that new generations arrive over time as a continuous flow of births according to a given age-specific fertility schedule. In addition, they introduced savings and physical capital into the model, along with the assumption that the level of aggregate output depends on the aggregate quantity of labor and capital. More recently, Willis (1988) extended the model of Arthur and McNicoll to consider the role of intergenerational transfers through the family, state, and market in an age-structured model, and showed how various transfer policies may influence the national savings rate and the equilibrium rate of interest. In a series of papers, Lee and colleagues (Lee and Lapkoff, 1988; Lee, 1994b; National Research Council, 1997; Lee, 2000) have imple-

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Page 161mented this model empirically, and in conceptually related work, Auerbach et al. (1991) have developed a “generational accounting” model to assess public-sector intergenerational transfers. Arthur and McNicoll (1978) address the question of whether a small increase in the rate of population growth raises or lowers per capita lifetime consumption in steady state. 2 We reverse their focus by asking about the economic effects of a decrease in the rate of population growth. This question is at the very core of the debate over the economic consequences of population aging and the efficacy of alternative policy responses. Standard neoclassical economic growth models of the type described by Solow (1956) and Diamond (1965) imply that low rates of population growth will always increase feasible consumption because of “capital deepening.” That is, as the rate of population growth decreases, smaller shares of output need to be diverted away from consumption and toward investment to maintain a fixed amount of capital per worker. This beneficial effect of lower population growth was stressed by Coale and Hoover (1958) and many others in connection with discussions of policies aimed at reducing fertility in developing countries that were experiencing rapid population growth after World War II. In a model that ignores the effects of age structure, lower rates of population growth always tend to raise per capita consumption because of the capital-deepening effect. This conclusion may not hold in an age-structured model because of an intergenerational transfer effect. Changes in the rate of population growth will produce such an effect whenever there are net aggregate transfers taking place between members of different age groups. These transfers may be in either direction, from young to old or from old to young, and they may occur in the institutional context of the family, state, or market. For example, transfers through the family may take the form of parental expenditures on children or old-age support provided by children for their parents; transfers through the public sector may involve tax-supported public education or pay-as-you-go social security programs; and implicit intergenerational transfers may take place through credit markets if lenders, on average, are either older or younger than borrowers. Changes in the rate of population growth produce an intergenerational transfer effect because they induce a change in the age structure and, hence, alter the relative numbers of people who give or receive trans- 2The models discussed in this section employ a “comparative steady state” approach in which the long-run demographic and economic structure of a society whose population is growing at, say, 1 percent per year is compared with that of a society whose population is decreasing at a rate of 1 percent per year. Later, we briefly discuss some important questions associated with a transition in population growth from a higher to a lower level.

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Page 162fers. On the one hand, a decrease in the rate of population growth increases the fraction of elderly in the population and therefore increases per capita lifetime consumption opportunities for members of each generation if the old tend to make net transfers to the young. For example, if parents transfer a given amount of resources to each child and there are fewer children because of a reduction in fertility, the resources available for consumption by adults will increase without reducing the amount consumed by each child. On the other hand, a decrease in population growth will reduce per capita lifetime consumption if net transfers are from the younger to the older generation. It is important to distinguish between the effects of population aging on the potential economic welfare of the society as a whole and on particular programs within the public sector. For example, the fertility decline that is leading to population aging in the United States and other Western countries may have the long-run effect of increasing potential per capita lifetime consumption if the direction of net intergenerational transfers is from the older to the younger generation. In this case, the intergenerational transfer effect reinforces the capital-deepening effect. However, the effect of population aging is likely to cause increasing problems for public-sector transfer systems. In countries that finance old-age security through pay-as-you-go public pension schemes in which the direction of intergenerational transfers is from the younger to the older generation, it has become acutely obvious to policy makers that population aging may make it impossible to maintain such programs without increasing payroll taxes or reducing retirement benefits. In the next section, we present some empirical findings to illustrate the direction and magnitude of transfer systems in countries at different levels of economic development and in various subsystems of transfers that operate through the family and the public sector. The Direction of Intergenerational Transfers and Economic Development Much of the demographic literature would lead policy makers to expect major shifts in the patterns of assistance among generations of kin as economic development progresses. Of particular note is Caldwell's (1976) theory that the direction of wealth flows reverses in the course of economic development. He argues that there are two types of societies: pre-transitional societies in which transfers from young to old are motivated by high fertility, and post-transitional societies characterized by levels of low fertility and net transfers from parents to children. This theory has been called into question on both theoretical and empirical grounds, most explicitly by Kaplan (1994:755) who argues:

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Page 163 In contrast to wealth-flows theory, models of fertility and parental investment derived from evolutionary biology expect that the net flow of resources will always be from parents to offspring, even when fertility is high. The logic underlying this expectation is that natural selection will have produced a preponderance of organisms that are designed to extract resources from the environment and convert those resources into descendants carrying replicas of their genetic material. Careful empirical measures of age-specific consumption and production among primitive hunter-gatherers produced by Kaplan and other anthropologists indicate that individuals tend to produce more than they consume at every age. The implication is that net transfers are downward, from older to younger generations. Empirical measures of net transfers in peasant societies are summarized in Figure 5-1 for several different societies, ranging from the hunter-gatherer tribes studied by Kaplan, to urban and rural areas of Cote d'Ivoire studied by Stecklov (1997), to measures for the United States calculated by Lee (1994a). The lower panel of the figure measures Ac − Ay, the difference between the mean age of consuming and the mean age of producing over the individual life cycle, using a clever geometric device of Lee's (1994a) invention. The tail of each arrow is located at the average age of production (Ay), and the head is located at the average age of consumption in the population (Ac). The length of the arrow is the number of years traversed by the average transfer. This distance measures the magnitude of the intergenerational transfer received or given as a proportion of the present value of lifetime income for a representative person in the society. 3 An arrow that points to the left indicates that the direction of net transfers is downward, from the older to the younger generation; an arrow that points to the right indicates an upward net transfer from the younger to the older generation. The vertical position of the arrows orders the society by the magnitude of the downward transfer. The arrows in the lower panel of Figure 5-1 tell a clear and remarkable story. In all of the societies depicted except for the United States, net transfers are downward, as predicted by evolutionary theory, rather than upward, as predicted by Caldwell's wealth flows theory. Moreover, the magnitude of the transfers, as measured by the length of the arrows, is largest for the most primitive group, of intermediate length for the developing country, and small and of opposite sign for the most advanced country. Recall that the sign of (Ac − Ay) indicates the effect of higher population growth on the feasible level of per capita lifetime consumption, ignoring capital-dilution effects. The left-pointing arrows indicate 3This model assumes that the society is in a steady-state golden rule equilibrium with a constant rate of population growth equal to the rate of interest.

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Page 164 ~ enlarge ~ FIGURE 5-1 Direction and magnitude of intergenerational transfers: A cross-society comparison. SOURCE: Lee (2000). Reprinted with permission.

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Page 165 that a reduction in the rate of population growth would have a quite beneficial effect on per capita lifetime consumption for the hunter-gatherers and a smaller but distinctly beneficial effect in Cote d'Ivoire. The reason for this is that individuals within these two societies consume more than they produce at the beginning of life, but once they reach adulthood, they produce more than they consume until they die. Thus adults in these societies make investments in the next generation that are never repaid. In contrast, (Ac − Ay) in the United States is positive, indicating that an increase in fertility would generate a positive intergenerational transfer effect that would be partially offset by a negative capital-dilution effect associated with the additional investment needed to equip more workers with a given amount of capital. The direction of intergenerational transfers in the United States and other advanced countries differs from that in less developed countries and primitive societies for two main reasons. First, in the advanced countries, the elderly as well as children consume more than they produce, and they do so primarily as a consequence of reduced labor income. In short, unlike low-income societies, high-income societies provide for retirement transfers to fill the significant income gap that exists between the end of working life and death. Second, high-income societies are all experiencing very low rates of population growth and low mortality, so that the proportion of dependent young in these societies is far smaller than in high-fertility societies, while the proportion of dependent aged is much higher. These two factors tend to offset the fact that high levels of human capital investment in education and on-the-job training in the advanced countries result in a shift of individual productivity to later ages. 4 Intergenerational Transfers in Developed Countries The mechanisms by which intergenerational transfers take place through social, political, or economic institutions may be examined using modifications of the basic Arthur and McNicoll (1978) model as implemented empirically by Lee (1994a). By shifting the unit of analysis from the individual to the household, Lee explicitly introduces the family into the model. The arrows in the top panel of Figure 5-1 are based on household rather than individual measures of age-specific consumption and production for three advanced countries—England, Japan, and the United 4It should be noted, however, that Kaplan (1994) finds that male age-productivity profiles are positively sloped for a considerable period of time, reflecting, he argues, a considerable amount of learning required to become an efficient hunter. Thus, investment in human capital may be important even in very primitive societies.

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Page 189 population (Wolf, 1994a) or policies of a country directly to changes in the cost or structure of transfer systems. To date, these complex aggregate models have been used primarily to identify net costs to state transfer systems, although, as discussed earlier, it is possible and desirable to apply generational accounting methods to all transfer systems, including the family. The other literature is oriented toward the analysis of microphenomena. Macromodels Driven by heroic assumptions, macromodels of family transfers require information on the age structure of a population at a point in time and observed schedules of fertility and mortality rates. As noted above, census materials in combination with macro administrative data on national expenditures are inputs into a variety of generational accounting models. Even these ambitious data arrays, however, are inadequate for describing market options and variations in their price and supply. Such models also need to be supplemented with new, well-conceived measures of individual preferences and expectations of family and other relevant transfer systems. Further, geographic information system technology should be useful for plotting the locations of potential providers against that of the older reference person and for introducing variation in the locations of and access to alternative providers. While behavioral parameters are largely ignored in the estimation of macrolevel generational accounting models, they play a large role in the interpretation of data derived from these models. Best known are the implications of pay-as-you-go social security systems for aggregate savings behavior, which turn out to depend on whether individuals tend only to consider welfare from their own life-cycle consumption (Feldstein, 1974) or also to consider altruistically the welfare of their children and other descendants (Barro, 1974). In the former case, saving is reduced by a social security program, while in the latter case, the “Ricardian equivalence theorem” implies that public transfers from younger taxpayers to older retirees will be offset by private transfers from parents to their children, leaving net saving unchanged. Other theoretical models of family transfers and family behavior may produce still other implications. For example, Cox (1987) shows that intergenerational transfers within families that are motivated by exchange (e.g., money exchanged for caregiving) rather than altruism may cause social security programs to either increase or decrease saving, depending on the (implicit) price elasticity of demand for the services provided by children to their parents. In another variant, Becker and Barro (1988) argue that Ricardian equivalence will not hold even in an altruistic model

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Page 190when fertility is treated as a choice variable. In the context of developing countries, Parish and Willis (1993) and Lillard and Willis (1997) suggest that family transfers may play a significant role in parental investment in the human capital of their children in the presence of borrowing constraints. Parents may divert retirement savings toward investment in their children's human capital in expectation of old-age support from those children. Micromodels Unfortunately, it has been difficult to conduct empirical tests of hypotheses about the effects of public transfer programs and policies on savings or other family behaviors, including fertility, human capital investment in the young, and monetary and time transfers by children to their parents or vice versa. For reasons discussed above, macrodata are inadequate for the task of testing behavioral hypotheses and estimating policy effects. Microdata are more useful, but there is a lack of relevant microdatasets. Microlevel data on savings and intrafamily transfers tend to be available only in a limited number of countries, and at the moment only in the United States among developed countries. 8 There are a number of high-quality datasets that measure family transfers (often in conjunction with other life domains) in developing countries, especially in Asia. 9 Among these are the Malaysian Family Life Survey (MFLS), the Indonesian Family Life Survey (IFLS), and several bodies of data from Taiwan and other Asian countries. 10 Although most analyses of transfers in developing countries focus on a single country, Frankenberg et al. (2000) show that a cross-national comparison of Malaysia and Indonesia can be quite illuminating when care is taken to collect microdata in comparable ways across countries. It is worth noting that both MFLS and IFLS were designed and carried out by the same organization (RAND), with many of the same researchers being involved in designing the two surveys. Several panel studies in the United States now provide fairly com- 8The English Longitudinal Survey of Aging will contain transfer information similar to that in HRS. 9A Mexican longitudinal survey, modeled after HRS and modified to deal with differences in culture and economic structure between the United States and Mexico, is expected to commence in the near future. It will contain extensive transfer information. 10These include the Taiwan Family and Women Survey (Lee et al., 1994); the Study of Health and Living Status of the Elderly in Taiwan (Weinstein and Willis, 2001); and a number of datasets from Taiwan, the Philippines, Thailand, and Singapore that are part of a collaborative project, Rapid Demographic Change and the Welfare of the Elderly, involving the University of Michigan and institutions from these countries (see Hermalin, 2000).

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Page 191plete coverage of the full option set for family transfers. This is accomplished either by interviewing multiple generations within the same family (e.g., the National Longitudinal Survey, the Panel Study of Income Dynamics, and a small subsample of the National Survey of Families and Households) or by having respondents enumerate individual kin and provide proxy reports of the relevant sociodemographic and economic attributes of each (e.g., the National Long Term Care Survey and HRS). By linking reports of transfers given or received to the potential individual exchange partners, these datasets provide opportunities to test hypotheses about donor motivation, reciprocal transfers over time within a given family, substitution of state transfers for family transfers, and net costs and benefits to donors and recipients over time. In combination with economic data on privately held resources (net worth), eligibility for all types of state transfer programs, and current and future benefit levels, these studies provide the data needed to examine a broad range of policy issues. Such richly detailed data come at a high price, however, and complex models are required to reap their analytic potential. These datasets can be used to describe transfers and test certain hypotheses. For example, analyses of data from HRS and the Asset and Health Dynamics Among the Oldest Old Survey by McGarry and Schoeni (1995, 1998) show that the net direction of monetary transfers in the United States is from parents to children for parents throughout the entire age range over age 50. As another example, Altonji et al. (1992) used data from the Panel Study of Income Dynamics to test the altruism hypothesis and found convincing evidence to reject some of its stronger implications. However, since almost all Americans are in the social security system, it is not possible to determine the effect of the program on savings, retirement, or intrafamily transfers using U.S. data alone. There are two approaches to data collection that could be used to estimate the effects of public programs on these variables. One would be to collect comparable microdata across countries whose public transfer programs differ. Highly developed countries in western Europe and elsewhere would be the best candidates for this approach. The other approach would be to collect data from a given country in which public programs change over time. Taiwan provides a good example because it is beginning to introduce a number of public programs into a society that previously had almost no such programs. And, crucially, there exist high-quality microdatasets for Taiwan that were collected before the change in policy regime, as well as ongoing data collection efforts that are scheduled to continue into the future.

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Page 192 RECOMMENDATIONS 5-1. An aggregate intergenerational accounting framework should be used to measure transfer streams and assess the costs of policy options. There is substantial variation in the mix of public- and private-sector inputs into the well-being of persons of different ages. Charting the volume, timing, and costs of different transfer streams is necessary to identify the effects of population aging within a country, as well as the costs of alternative policy options. Administrative data on age-specific tax and benefit receipts, essential inputs to the accounting framework, must be available as needed. Further, the value of nonmonetary transfers (e.g., family care of the elderly) must be captured and incorporated into the framework through redesigned survey mechanisms, time-use diaries, and related techniques. 5-2. Survey instruments that capture a full accounting of the nature and structure of intergenerational transfers should be developed. Exchanges among family members, whether living together or apart, represent the major intergenerational transfer system in developing countries and a key component in industrialized countries as well. It is essential to obtain a full accounting of the nature and structure of these transfers, including their content in terms of time, space, and money; the parties to the exchange; the persistence of the arrangements; and the underlying preferences and options shaping the observed patterns. 5-3. The use of cohort analyses and innovative simulation studies should be expanded. In both developing and industrialized countries, demographic, social, and economic changes are likely to have major impacts on public and private transfer systems through their effects on preferences, resources, and the size and structure of the kin network. Rising educational levels, for example, are likely to change the preferences of the future elderly for privacy and the types and amount of leisure desired, inter alia. While not all such changes can be anticipated, cohort analyses and simulation studies should be widely employed to illuminate trends in family size, marriage and divorce patterns, household arrangements, educational levels, and urban-rural residence. The implications of the emerging patterns should be considered in longer-term planning for older populations. 5-4. Prospective studies should be developed to explore the responsiveness of the family system to changes in policies and socioeconomic circumstances. To fashion sound policies and programs, it is important to understand the interrelationships among intergenerational transfer systems, particularly the responsiveness of the family system to new policies. This goal is complicated by the fact that policies may have unintentional effects on exchanges of family resources. Careful prospective studies that are atten

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Page 193tive to the way family members substitute for or complement nonfamilial resources, as well as to the family accommodations that take place in response to changing circumstances, can delineate key patterns and help guide policy formation. 5-5. Comparative analyses of prospective studies in developed and developing countries should be promoted. The important factors that bear on the combination of intergenerational transfer systems and their interrelationships generally display little variation within a country. However, the mix of transfer programs and their salience vary considerably between developed and developing countries and within each group as well. Cross-national research presents clear opportunities to relate variations in institutional arrangements to transfer incentives and behaviors. This variation provides a continuum of experience whose study can greatly enhance understanding of the role of various factors and their likely responsiveness to policy and program changes. REFERENCES Altonji, J.G., F. Hayashi, and L.J. Kotlikoff 1992 Is the extended family altruistically linked? Direct tests using micro data. American Economic Review 82(5): 1177-1198 . Angel, R.J., J.L. Angel, and C.L. Himes 1992 Minority group status, health transitions, and community living arrangements among the elderly. Research on Aging 14(4): 496-521 . Arthur, B.W., and G. McNicoll 1978 Samuelson, population and intergenerational transfers. International Economic Review 19(1): 241-246 . Auerbach, A.J., J. Gokhale, and L.J. Kotlikoff 1991 Generational accounts: A meaningful alternative to deficit accounting. In Tax Policy and the Economy , D. Bradford, ed., pp. 55-110 . Cambridge, MA : MIT Press for the National Bureau of Economic Research . Barro, R.J. 1974 Are government bonds net wealth? Journal of Political Economy 28(6): 1095-1117 . Becker, G.S., and R.J. Barro 1988 A reformulation of the economic theory of fertility. Quarterly Journal of Economics Bell, M., and J. Cooper 1990 Household Forecasting: Replacing the Headship Rate Model. Paper presented at the Fifth National Conference of the Australian Population Association, November, Melbourne . Bengston, V.L., and M. Silverstein 1993 Families, aging and social change: Seven agendas for 21st-century researchers. In Annual Review of Gerontology and Geriatrics. Focus on Kinship, Aging and Social Change , G.L. Maddox and M.P. Lawton, eds., pp. 15-38 . New York : Springer . Blieszner, R., and V.H. Bedford 1996 Aging and the Family . Westport, CT : Greenwood Press .

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