A Comparative Study of Financial Transfers within Families During the Great Recession

by Daniela Hochfellner, New York University and Mary K. Hamman, University of Wisconsin – La Crosse

The purpose of the project is to identify changes in private financial transfers within families across a business cycle, examine the influence of public transfers through Social Security and unemployment insurance systems on private transfer behavior, and infer implications for income inequality in a cross-country comparison between Germany and the U.S. We expect that less generous public transfers in the U.S. will lead the initial rate and amount of private transfers to be greater in the U.S. than Germany, but differences in wealth and employment loss across the recession and convergence in public transfer systems will lead private transfer behavior across the countries to become more similar over time. However, the influence of private transfers on income inequality could still diverge. Studying private transfers is important for social policy because private financial transfers may be an important source of economic security, especially in countries where the social safety net is less generous. However, they could also contribute to persistent income and wealth inequality. Understanding how two major public transfer programs (Social Security and unemployment insurance) affect transfers within family can inform design of policies to promote economic security and equity. Using the Great Recession and accompanying policy changes as unanticipated shocks to income and wealth, we are better able to test assertions in prior research that institutional differences lead to systematic differences in inter vivos transfers across countries. We are not aware of that any other study has done this before.

We combine two survey data sets to pursue the proposed analyses. The main data set is the Health and Retirement Study (HRS). The HRS contain all the information we need to construct financial transfer measures over time in the context of the U.S. Social Security System and unemployment insurance. In order to compare the U.S. system to a more generous system we use data from the Survey of Health, Aging, and Retirement in Europe (SHARE) on Germany. We harmonize the two data sets to conduct comparative analysis of changes in the direction, frequency and amount of financial transfers before, during, and after the Great Recession and as Social Security and unemployment insurance generosity change in each country. To find out how this affects inequality in different public transfer systems we estimate private transfer behavior as a function of income, the business cycle and public transfer generosity, and use these models to simulate income distributions with and without private transfers under more and less generous public transfer systems.

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