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Parents/children “deals”: Inter-Vivos Transfers and Living Proximity

Flavia Coda Moscarola (), Elsa Fornero and Mariacristina Rossi ()

No 95, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: We use a Cox-type model to investigate the role of the family as an informal market: parents enjoy their children’s proximity (a proxy for the informal care they can receive from their kids) and “reward” them with an anticipated wealth transfer. Children appreciate the reward, particularly when they are likely to be subject to liquidity constraints. For unconstrained households, our model predicts that the amount of time devoted to parents – and, correspondingly, the amount of transfers received from them - is related negatively to their own lifetime income and positively to their parents’ wealth. Other things being equal, liquidity constraints increase the utility associated to money in youth and correspondingly increase the living proximity of children to their parents’ home. We test the model’s predictions on Italian data, taken from the Bank of Italy Survey on Household Income and Wealth, by distinguishing between liquidity constrained households and unconstrained ones. Our preliminary results are in line with the theoretical predictions of the model. Proximity to parents is indeed rewarded with higher transfers. As for financial imperfections, liquidity constrained households live closer to their parents than non-liquidity constrained households.

Pages: 20 pages
Date: 2010-02
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