No. 127 - Do Intergenerational Transfers Offset Capital Market Imperfections? Evidence from a Cross-Section of Italian Households

We investigate whether a system of family finance exists and, if so, to what extent it is able to compensate for capital market imperfections. One of the implications of a simple model of intergenerational transfers is that the probability of a liquidity constrained consumer receiving a transfer is negatively correlated with his current endowment and positively correlated with his future resources. We test this proposition using a recent survey of Italian households in which both transfer recipients and liquidity constrained households are directly observable. The results indicate that private transfers help to ease the effect of capital market imperfections. However, we also find that a substantial number of liquidity constrained households remain even after transfers have been made.