Does Public Redistribution Crowd Out Private Transfers? Evidence from Four Countries

Together with private transfers, centralized redistribution policies form the backbone of social welfare systems worldwide. Examining their interplay is therefore crucial for understanding and addressing inequality. We investigate the relationship between private transfers and public redistribution policies using an experiment with nearly 4000 participants from Germany, India, Indonesia and the USA. The experiment creates large inequalities, then introduces one of four centralized redistribution regimes to address the inequality. Our findings reveal that no redistribution policy changes private pro-social or anti-social transfers, compared to an environment without centralized redistribution. Structural estimates show that egotistic, rather than social motives drive private transfers, and that inequality aversion is unaffected by redistribution policies, thus explaining the lack of a private response. This suggests that governments possess an additional degree of freedom in pursuing social safety nets.