Intergenerational transfers, demographic transition, and altruism: Problems in developing Asia

• DOI: http://doi.org/10.1111/rode.12369
• Published date: 01 August 2018
• Author: Manachaya Uruyos,Yoshitaka Koda
• Date: 01 August 2018

SPECIAL ISSUE ARTICLE

Intergenerational transfers, demographic transition,

and altruism: Problems in developing Asia

Yoshitaka Koda

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Manachaya Uruyos

Chulalongkorn University, Bangkok,

Thailand

Correspondence

Yoshitaka Koda, Faculty of Economics,

Chulalongkorn University, 254 Phayathai

Road, Pathumwan, Bangkok 10330,

Thailand.

Email: yoshitaka.k@chula.ac.th

Funding Information

This research was funded by the

Ratchadapisek Sompoch Endowment

Fund (2015), Chulalongkorn University

(CU-58-073-AS).

Abstract

This paper develops a three-period overlapping-genera-

tions model where middle-aged agents care about not

only their own lifetime utility but also their old par-

ents’and children’s well-being. The doubly altruistic

agents choose amounts of intergenerational transfers to

their old parents and children as well as private sav-

ings. The government specifies amounts of public trans-

fers from working adults to the dependents. The model

also takes the effects of demographic transition on the

burdens of supporting the elderly and children into

account. Using 23 countries’data from the National

Transfer Accounts (NTA), we estimate the degrees of

filial and parental altruism and adjust them for their

respective life expectancy and fertility rates. The find-

ings suggest that people in developing countries are

more parentally altruistic than those in developed ones

while the adjusted degree of filial altruism tends to be

low in developing Asia. Our welfare analyses reveal

that the developing Asian countries must introduce

more comprehensive public welfare programs for the

elderly to maximize social welfare. Moreover, their low

adjusted degree of filial altruism may trap the develop-

ing Asian countries at the low levels of public old-age

support and social welfare as the further demographic

transition ensues.

DOI: 10.1111/rode.12369

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©2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2018;22:904–927.

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INTRODUCTION

As an economy develops, increasingly large amounts of resources are transferred from working

adults, who produce more than they consume, to their elder parents and children, who consume

more then they produce. Lee and Mason (2011) illustrate the life-cycle deficit, which is given as

consumption minus labor income, in three different stages of development: hunter–gatherers, poor

agricultural populations, and rich industrial populations. In all three societies, young parents have a

negative life-cycle deficit. People in both rich and poor countries have positive life-cycle deficits

in their childhood and old adulthood. The life-cycle deficits are larger for children and the elderly

in rich countries owing to their larger expenditures on education, healthcare, and old-age support.

Larger asset income in rich countries also raises their consumption and hence life-cycle deficits.

Though the life-cycle deficit of children in hunter–gatherer societies is positive, that of the elderly

is negative because they work until the end of life. In summary, Lee and Mason (2011) point out

that the life-cycle deficits of dependent family members have increased sharply with development.

The absence of asset income in hunter–gatherer societies implies that intergenerational transfers

cover all life-cycle deficits of children. In later stages of development, consumption can be funded

partly by relying on assets. While dependents in poor countries count a great deal on transfers

from working adults to cover their life-cycle deficits, those in rich countries rely more on assets

income.

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Because of the demographic transition, the burden of sustaining the dependents has been chang-

ing. For young parents, the decreasing number of children eases the burden of sustaining their chil-

dren’s consumption. An improvement in longevity and a decrease in the number of siblings intensify

the burden of sustaining their old parents’consumption since each individual is expected to take care

of their elderly parents more. In addition, when the number of children decreases, family old-age sup-

port mechanisms via private transfers have higher default risks owing to nonsurvival or noncompli-

ance of children. As a result, governments in developed nations have instituted various public

welfare programs for the elderly as alternatives to the private old-age support mechanisms (Ehrlich &

Lui, 1998). As it is well known that welfare programs for children increase future productivity of the

economy, the same governments have introduced public transfers to children to make sure that every

child gets proper care and education. If we turn to the political economy literature, Becker and Mur-

phy (1988) point out that investments in children’s education by altruistic parents may be insufficient

because there cannot exist a contract that obliges children to compensate them in the future. The re-

fore, public spending on education packaged with public pensions is needed to achieve the optimal

education level. While these public welfare programs often crowd out private transfers, the govern-

ment interventions do not release young adults from the burden of supporting their d ependents. As

Nishimura and Zhang (1995) suggest, from the perspective of each young agent who makes contribu-

tions to welfare programs, public transfers are viewed as forced private transfers. Therefore, even

after public welfare programs are introduced, ongoing demographic transition makes the total burden

of raising children smaller and that of supporting elderly parents larger.

In this study, we utilize data compiled by the National Transfer Accounts (NTA). The NTA

normalizes an average annual transfer that each of the dependents receives as a percentage of aver-

age labor income of prime-age (30–49) adults.

2

In 2004, each child from age 0 to 29 in India,

Thailand, and Japan received normalized transfers equal to 0.26, 0.34, and 0.40 respectively, from

their parents and governments.

3

In the same year, the same young parents and governments pro-

vided each elderly adult from age 60 to 89 with normalized transfers equal to 0.08, 0.21, and 0.42,

respectively. This suggests that both the per capita transfers to children and to the elderly increase

with the level of development, albeit the differences in the latter are more pronounced. Once the

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