Essays on Saving, Inter-vivos Transfers, and Altruism

• Main Author: Chu, Yu-Chi
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01.01.2020
• Subjects: Economics
• ISBN: 9798516946905

The first chapter of the dissertation proposes revisions to the current views on inter-vivos transfers in an altruistic framework. The second chapter shows that the altruism model can generate the three stylized facts of inter-vivos transfers made from living parents. The third chapter explains that the consumption smoothing mechanism is important to understand why student loan borrowers in the U.S. are delaying repayments.Chapter 1. Parental Altruism and Inter-Vivos Transfers: Three familiar results about inter-vivos transfers made by altruistic parents are as follows:(i) the timing of inter-vivos transfers is indeterminate in a deterministic model with perfect credit markets; (ii) parents do not make inter-vivos transfers in a stochastic model with perfect credit markets; and (iii) once a credit constraint is introduced into the stochastic model, inter-vivos transfers only flow to credit-constrained children. This paper establishes an example with a closed-form solution to overturn the first result. I use insights learned from the analytical exercise to cast doubts on the second and the third. A numerical exercise confirms my thoughts.Chapter 2. A Full Solution to a Dynamic Model of Altruistic Transfers: A famous paper delivers an important message—it is hard to reconcile the empirical evidence on inter-vivos transfers with the model that generates parental transfers by altruism. In this paper, I cast doubts on this claim by two steps. First, I revisit the canonical two-period model of altruistic transfers in Altonji et al. 1997 and show that the existing solution is different from the solution computed by the grid-search approach. Solving the model globally, I find that the two-period model can potentially account for the three stylized facts of inter-vivos transfers made from living parents: (i) the change in gift amounts for a change in a parent's income is positive, (ii) the change in gift amounts for a change in a child's income is negative, (iii) the difference in the transfer change with respect to parent's income and child's income is close to zero. Second, I extend the toy two-period model to a life-cycle economy with borrowing constraints, income risks and mortality risks. Then, I simulate the model to create an artificial Panel Study of Income Dynamics (PSID)—the data set that has been widely used to study parental transfers. The model is calibrated to match the key micro moments calculated from the parent-child pairs in the PSID. Using the artificial PSID and repeating the empirical regressions, I find that the model estimates are in line with the empirical counterparts. My finding suggests that altruism is still a reasonable candidate to understand parental transfers.Chapter 3. Credit Constraints and Student Loan Delinquency: Delinquency rates among student loans borrowers of the past two decades follow a U-shaped: the delinquency rates had been persistently declining between 1992 to 2007, and have been increasing afterwards. This paper is developed to quantitatively account for student loan delinquency rate of the past two decades. I use the life-cycle model with credit constraints and incorporate key features of Federal Student Aid Program. Student loans cannot be discharged through bankruptcy, and this feature builds a tight link between credit markets and delinquency decisions. The mechanism is that taking new loans and being delinquent on student loans are substitutes. When people cannot smooth consumption through credit markets, they are delinquent on the existing loans for more liquidity today. The credit market expansion before 2007 and the credit crunch afterwards help explain the U-shaped delinquency rates for student loans.