Interfamily Transfers As Alternatives To Government Transfers To Persons

How have government transfers altered the distribution of income, the level of work effort, and the rate of personal saving? Most scholars approach this question by comparing the current level of government transfers with the unrealistic counterfactual of a zero‐transfer situation. This method overlooks the fact that nongovernment transfers existed before government transfers and the possibility that private transfers might have grown more if government transfers had grown less. This paper explores the significance of one private alternative to government transfers‐namely, direct interfamily giving of cash, food, and housing. Fragmentary evidence suggests that such interfamily transfer was quantitatively more important than governmental transfer for these purposes thirty years ago, but is now only half as great. If current government transfers are conversions of, or substitutes for, interfamily transfers, then it follows that some of the benefits of government transfer “slide” over to “secondary beneficiaries,” i.e. those who would have made the private transfers. Further, it follows that the effects of government transfers are not much different from those of the private transfers which they replace.