Thinking of Incentivizing Care? The Effect of Demand Subsidies on Informal Caregiving and Intergenerational Transfers

We still know little about what motivates the informal care arrangements provided in old age. Evidence from demand-side subsidies such as unconditional caregiving allowances (cash benefits designed either to incentivize the purchase of care, or compensate for the loss of employment of informal caregivers) provide an opportunity to gain a further understanding of the matter. We exploit a quasi-natural experiment to identify the effects of the inception in 2007 (and reduction in 2012) of a universal caregiving allowance on the supply of informal care, and subsequent intergenerational transfer flows. We find evidence of a 30% rise in informal caregiving, which amounts to 27% of long-term care expenditure, and an increase (reduction) in downstream (upstream) intergenerational transfers of 29% (and 15%). The effects were attenuated by a subsequent policy intervention; the reduction of the subsidy amidst austerity cuts in 2012. Individuals in middle and lower income and wealthy quintiles mainly drive these effects.