Is the receipt of social assistance transmitted from parents to children? Evidence from German panel data

This paper investigates the extent to which the duration and the receipt of social assistance (SA) are linked between parents and children in Germany. Several related questions are addressed. Does parents’ SA duration increase the future welfare dependency of children? Given exposure of welfare at home, are daughters more likely to live on SA later on than sons? Are there any differences in the probability of welfare dependency among young adults from the former East and West Germany? The analysis is based on alternative estimation procedures (probit and tobit, instrumental variable and non-parametric estimations) using data from the first nineteen years of the German Socio-Economic Panel Study. The estimates suggest that parental welfare receipt during late childhood years (ages 13-16) increases the probability and the expected duration that children receive SA in later life. Using various geographical differences in SA rates in Germany (between East-West Germany, northern-southern federal states and urban-rural areas) provide unique instruments to identify a causal link in intergenerational welfare receipt. No empirical evidence is found that the correlation in SA participation between parents and their adult children is spurious. JEL classification: J62, I38, J13