Net versus Gross Measure of Monetary Transfers in Intergenerational Exchange Studies

This paper investigates whether the choice of the net versus gross measure of monetary transfers from adult children to their elderly parents can explain the differences in the estimates of the wage effect on money transfers found in earlier studies. It carefully documents the transfer pattern and points to the limitations of the OLS specification in the analysis of net transfers. A three-part model is offered as a better alternative for the analysis of net transfers. This model consists of a multinomial probit and two OLS equations for negative and positive net transfers. The results from estimating this model uncover the following empirical regularities. First, wages of adult children play an important role in the determination of the transfer status: higher wages are associated with a lower likelihood of adult children being net recipients and higher likelihood of them being net givers. Second, there is a significant positive effect of wages on the amount of transfers given to elderly parents among the net givers while the wage effect among the net recipients is negative but not statistically different from zero. Finally, it has been found that certain characteristics have similar effect on both probability of being a net recipient and probability of being a net giver. These features provide a useful guideline for future theoretical research. One of the possible theoretical models that possesses such features is outlined in this paper.