Intergenerational Transfers, Demographic Transition, and Altruism: Problems in Developing Asia

We develop a three-period overlapping-generations model where middle-aged agents care about not only their own lifetime utility but also their old parents’ and children’s well-being. The double altruistic agents choose amounts of intergenerational transfers to their old parents and children as well as private savings. Governments specify amounts of public transfers from working adults to the dependents. The model also takes the effects of demographic transition on the burdens of supporting elders and children into account. Using the 14 countries’ data from the National Transfer Accounts (NTA), we estimate the degrees of filial and parental altruism and adjust them with their respective life expectancy and fertility rates. We find that the developed countries are more filially altruistic than the developing ones, while the latter are more parentally altruistic than the former. Especially, people in developing Asia have notably lower adjusted degrees of filial altruism than those in the other countries. Our welfare analyses reveal that the developing Asian economies must introduce more comprehensive public welfare programs for the elderly to maximize social welfare. Moreover, their low adjusted degrees of filial altruism will trap the developing Asian economies at the current low levels of public old-age support and social welfare as further demographic transition ensues.

WORKING PAPER NO: 786