Crowding out of private support to the elderly: Evidence from a demogrant in Mexico

To examine whether private support dampens or reinforces the impact of redistributive policies, this paper estimates the effect of an exogenous increase in the income of the elderly, caused by a recent demogrant in Mexico, on the amount of private transfers they receive. My instrumental variables strategy overcomes the endogeneity of income that typically contaminates estimates and, unlike related studies that use natural or policy experiments in reduced-form estimations, it yields evidence of a positive bias. This suggests that an unobservable characteristic is positively correlated both with income and private transfer receipt and that treating income as exogenous could lead to an underestimation of the crowding out effect. In contrast, my preferred estimates are negative, significant and not far from minus one, implying an almost complete crowding out. My findings suggest that private transfers could neutralize the changes in the public transfers for the elderly.