More Schooling, More Generous? Estimating the Effect of Education on Intergenerational Transfers†

• Published date: 01 March 2022
• Author: Ting Yin,Junchao Zhang
• Date: 01 March 2022
• DOI: http://doi.org/10.1111/asej.12260

More Schooling, More Generous? Estimating

the Effect of Education on Intergenerational

Transfers

†

Ting Yin

1,2

and Junchao Zhang

3

Received 10 June 2021; Revised 9 November 2021; Accepted 18 November2021

This paper studies the causal effect of education on intergenerational transfers

from/to adult children. Using micro-data from the China Health and Retirement

Longitudinal Study, we use exogenous variations in parents’schooling induced by

China’s Great Famine to take account of the endogeneity of education and then

estimate the effect of schooling on the probability of receiving/giving transfers

from/to adult children. The instrumental variable estimates show that an additional

year of schooling has a negative effect on the probability of receiving transfers

but a positive effect on the probability of giving transfers at old age. Our results

have some implications regarding social security and education policies in aging

societies.

Keywords: China, education, intergenerational transfer, instrumental variable.

JEL classification codes: D64, H55, I21.

doi: 10.1111/asej.12260

I. Introduction

The issues China is facing due to its aging population are of unparalleled scale.

As the baby boom generation born during the 1960s age, their children will face

massive pressure to support their parents. The old-age dependency ratio was

only 13 percent in 2015 but is expected to be 40 percent by 2050.

1

Developed

countries such as the United States and Japan and EU countries have social

security systems that cover the majority of the elderly population. China is still

*Yin: Hitotsubashi University, Tokyo, Japan, Research Institute of Economy, Trade and Industry

(RIETI), Tokyo, Japan. Zhang (corresponding author): Niigata University, Niigata, Japan. Email:

zhang@econ.niigata-u.ac.jp.

†

This study was part of the Research Institute of Economy, Trade and Industry’s (RIETI’s) Human

Capital Program. We would like to thank Makoto Yano, Masayuki Morikawa, Atsushi Nakajima,

Hiroshi Ikari, and the seminar participants at RIETI for many valuable comments. We also thank the

RIETI staff for their help and cooperation. Any errors are our own responsibility. This research was

supported by JSPS KAKENHI Grant Number 26780184 and 20K13524 (PI: Ting Yin) and

19K13710 (PI: Junchao Zhang).

1

Source: European Commission

© 2022 East Asian Economic Association and John Wiley & Sons Australia, Ltd.

Asian Economic Journal 2022, Vol.36 No. 1, 22–46 22

at a low level of economic development and has few social security measures in

place, especially for elder cohorts and rural people.

Other than social security measures, private transfers among adult generations

within the family are the most important resource for old-age care in China.

With its long history and culture, China has unique traditional family values.

‘Filial piety’, measured by monetary and time transfers from adult children to

their elderly parents, has compensated for the absence of an adequate social

security system. In addition, intergenerational transfer behaviors have crucial

policy implications for society, as many public programs, such as social security

systems and the taxation of savings, depend upon the intergenerational links

within families.

Economists have established many theoretical models to explain transfer

behavior across generations (e.g. Becker, 1974; Kotlikoff, 1988; Altonji

et al., 1997). On the one hand, the altruistic model suggests that parents care

mainly about the happiness of their children, and transfers flow from the least to

the most financially needy generation independently of any present or future

mutual help (Becker, 1991; Fujiu and Yano, 2008). On the other hand, in the

exchange model, financial transfers from parents reflect the payment of services

and visits provided by children (Cox, 1987; Cox and Rank, 1992). Cox and

Stark (2005) develop a new theoretical model of transfers that is not based

on the monetary mechanism. According to the ‘demonstration effect’model, a

child’s propensity to furnish their parents with attention and care can be

conditioned by parental example.

The literature on intergenerational transfers has accumulated rapidly in China.

_

Imrohoro

glu and Zhao (2018) argue that family support plays a prominent role

in the well-being of the elderly and often substitutes for the lack of an effective

government-provided old-age support system in China. Using national-level

data, Zhu et al. (2014) investigate transfer behavior in the context of China’s

one child policy, and they find that a decrease in the number of children results

in parents investing more in their children’s schooling. Cai et al. (2006), Lei

et al. (2012) and Wu and Li (2013) and are among the very few studies that use

individual-level data to analyze intergenerational transfer behavior. Lei

et al. (2012) analyze patterns and correlates of intergenerational monetary trans-

fers, and they find that transfers are significantly affected by adult children’s

financial capabilities. Educated and married children are more likely to provide

transfers to their elderly parents. Cai et al. (2006) and Wu and Li (2013) show

that intergenerational transfers to elderly parents are conditioned on pre-transfer

household resources. According to Wu and Li (2013), a 1-yuan loss of income

among elderly parents would be compensated by an increase of 0.75 yuan of

transfers from their children.

Education could be a potential cause of intergenerational transfer behavior;

however, it is difficult to estimate its effect because of endogenous educational

decisions. Figure 1 shows the graphical correlation between intergenerational

transfers and schooling. Panels A and B show the probabilities of receiving and

EDUCATION AND INTERGENERATIONAL TRANSFERS 23