Income Shocks, Intergenerational Transfers, and Human Capital in Germany

This paper uses the GSOEP to analyze the impact of German reunification on financial transfers from parents to their adult children. A difference-in-differences approach is applied to estimate probability and amount of transfers. The analysis indicates that, across time, Easterners are less likely to make transfers than Westerners. Over time, the propensity to give to all children has decreased in the East, and the amount given has increased in the West. However, transfers to collegeage children have increased in both regions. These results support a relevant role for liquidity constraints and human capital investments in the determination of parental transfers.