How Family Transfers Crowd-out Social Assistance in Germany

Abstract

The non-take-up of social assistance has been receiving increased attention among policy makers in recent years as it would apparently underpin the effectiveness of public intervention in alleviating poverty. We examine whether receipt of private transfers affects the household decision to take-up social assistance in Germany between 2009 and 2011. We exploit the follow-up of households in the SOEP to reconstruct family links and estimate a model of welfare participation with endogenous private transfers and sample selection of the instruments. We find that 20% of the non-take-up rate is due to monetary substitution of private transfers lowering the welfare program costs. However, we find that social assistance is more effective in alleviating poverty and its intensity than private transfers.