Do private transfers 'displace' the benefits of public transfers? Evidence from South Africa

This paper investigates whether government transfer programs displace or 'crowd out' private support, focusing on a large increase in state old age pensions in South Africa. Using data spanning the period of the expansion, we find that each rand of public pension income to the elderly leads to a 0.25-0.30 rand reduction in private transfers from children living away from home. However, despite the large increase in income, there were no significant changes in migration, labor supply or household composition. We also show that evaluations of the distributional effects of the pension are overstated when crowding out is ignored. (C) 2002 Elsevier B.V All rights reserved.