Social Security and Private Transfers in Developing Countries: The Case of Peru

Do social security systems "crowd out" private transfers from younger to older generations? This question has generated much theoretical discussion, but little empirical work exists to confirm or refute this crowding-out hypothesis. The authors investigate the connection between social security and private transfers in Peru, using the Peruvian Living Standards Survey, and find that private transfers from young to old would have been nearly 20 percent higher without social security benefits. This indicates that the Peruvian social security system is less effective at delivering benefits to the elderly than a simple assignment of government expenditures would suggest. Social security's displacement of private transfers, while significant, is less than that predicted by models with widespread altruistic transfers. Copyright 1992 by Oxford University Press.