Crowding out or crowding in? Public and private transfers in GermanySubstituts ou compléments? Transferts publics et privés en Allemagne

Intergenerational support exchanges are of particular interest in the ageing populations of Europe. This paper investigates the relationship between private and public financial transfers to and from elderly people using data from Germany. First, the determinants of private transfer giving are analysed. We find a positive correlation between the amount of public transfers elderly people receive and the private transfers they give. This mechanism can be interpreted as a detour system, an inefficient backflow of pay-as-you-go financed pensions to the young generation. On the other hand, we find for the much smaller group of elderly people who receive private financial support, that these transfers are negatively correlated with the public transfers they receive. Therefore, the “crowding out” hypothesis cannot be rejected and it is possible that public transfers to older people by the German welfare state may displace private financial support which they would otherwise have received.