Intergenerational transfers in the long term care market

Families engage in intergenerational monetary and time transfers in response to their economic, emotional and health care needs. Using FIRS data from 1993-2002 and a two-party (parent and offspring) utility maximization framework, this dissertation examines how personal characteristics, family conditions and state-specific home care policies affect inter vivos transfers to children and informal care of parents. Is current gift giving by parents an investment for future time assistance by their offspring, a reward for previous assistance or is there no relationship between these actions? Using a censored Tobit model, a two-step Heckman procedure, as well as OLS and binary Logit models, results suggest that former parental gifts to adult children and former child time assistance to elderly parents significantly affected parents\u27 current money transfers and time assistance by children, respectively. Empirical results also show that children\u27s characteristics affected parental gift giving while parental characteristics affected time assistance, which highlights the interdependent nature of these decisions. When studying each wave separately, contemporaneous time assistance was positively related to parental gifts and became statistically significant towards the end of the study period. This result was further strengthened when we used the entire panel dataset with state and time dummies and the two-step Heckman procedure. In contrast, earlier time assistance was negatively related to these gifts and not statistically significant and parental gift giving did not seem to predict greater children time assistance. State policies such Medically Needy programs, adult day care centers, and respite care services were statistically significant during specific waves (e.g., 1993, 1998 and 2002) and often complemented parental gifts and informal care. These findings highlight the importance of state programs in encouraging intra-family support for the elderly.