Private Transfers And The Effectiveness Of Public Income Redistribution In The Philippines

Private, inter-household income transfers in the Philippines are large and widespread. They are responsive to the economic status of households. Transfers are targeted to households headed by the non-employed and those without access to retirement pensions. Among the very poorest households, decreases in their pre-transfer income appear to prompt large increases in private transfers suggesting that transfers are in part motivated by altruism. The responsiveness of transfers to household income implies that attempts to improve the economic status of poor households could be thwarted by private responses. If a poor household can tap increased government aid, its private benefactors would cut back on their on transfers, For example, we estimate that if unemployment insurance were instituted in the Philippines, the policy would prompt such large reductions in private transfers that the jobless households would only be slightly better off. We also find that social security prompts similar, though smaller, reductions in private transfers, and those government efforts to alleviate poverty would fall short of the mark because of private-transfer responses. In spite of the private-transfer response, however, public transfers still confer benefits are smaller than those implied my analyses that ignore private-transfer behavior.