The connection between public transfers and private interfamily transfers

This paper investigates the anti-poverty effectiveness of public transfers taking private-transfer responses into account. Widespread, altruistically motivated private transfers would neutralize the distributional impact of public transfers. But exchange-motivated transfers can reinforce the effects of public transfers on the distribution of economic well-being. The common technique for gauging anti-poverty effectiveness (subtracting public transfers from other income and measuring the poverty-rate counterfactual) yields results that are close to a more complex procedure that takes private-transfer responses into account. And some of the empirical findings suggest an exchange, rather than altruistic, motive for private transfers, indicating that the effects of public transfers can be magnified by private behavior. This is an exact reversal of the prediction that public transfers merely supplant private ones.