Population aging, living arrangements, and inequality: The role of familial transfers in South Korea

Abstract

Many studies have shown that population aging leads to an increase in inequality because inequalities in income and consumption tend to increase with age. However, the effect of population aging on consumption inequality among the elderly may depend on the strength of the old-age support system, as transfers can reduce inequality. Although the role of public transfers has been widely examined, little is known about the role of familial transfers in reducing inequality. This study constructs National Inclusion Accounts (NIA) by using South Korea’s micro-level National Transfer Accounts (NTA) data by living arrangement and household income level and examines the role of familial transfers in the old-age support system and in reducing inequality. The results suggest that intergenerational familial transfers in extended households help to reduce consumption inequality among older people. By income level, older people in low-income households are more dependent on public transfers. Older people in high-income nuclear households rely more heavily on their own assets for consumption, and those in high-income extended households are more dependent on familial transfers. A counterfactual analysis suggests that consumption inequality among older people has increased over time in large part due to a rapid decline in extended households in South Korea.