Spanish subsidies for caregiving inspired a massive shift from community to home care for the elderly, according to research by Joan Costa-Font, Sergi Jiménez-Martínez and Cristina Vilaplana-Prieto, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.
The authors use evidence from a 2007 reform of Spanish law that gave subsidies to caregivers, whether members of the family or based in the community, to examine the effect of care subsidies on the choice of who gives the care.
The subsidies created more informal caregiving, because the elderly could use the subsidies to sustain household income if care was given at home by family members. The researchers find that the subsidies increased the probability of informal caregiving by 31% and the probability of downstream intergenerational transfers (going to a younger family member) by 29%.
The conclude: ''Caregiving subsidies can significantly alter the decision to provide care and financially support household members. The universal nature of caregiving allowances might have entailed an incentive for previous non-caregivers to provide care.''
Elderly care is delivered by both family and community caregivers, but both types of care can be provided with incentives by a system of subsidies (allowances). Although caregiving subsidies can be overall less costly than equivalent community care interventions, they often encompass a sacrifice in terms of forgoing employment of the caregiver.
Here we exploit an additional unintended effect of caregiving subsidies, namely that they can alter the balance of care and financial arrangements that individuals would otherwise have chosen. The welfare effects of an expansion of a demand subsidy depend on understanding such effects.
More generally, informed policies need to take account of both the intended and the unintended effects of subsidising various types of care. Hence, much of the effect of subsidies depends on its design – for example, whether it is means-tested (like attendance allowance in England) or universal; and whether it is conditional (such as vouchers) or unconditional.
To date there is limited evidence of the effect of monetary incentives – such as subsidies affecting the relative income of different party members of caregiving decisions – on the supply of care and, especially, about potential alteration of intergenerational transfers in the household.
It is important to understand whether subsidising the provision of informal care through caregiving allowances influences the supply of care. This is important because if caregiving is driven by exchange motivations, cash subsidies can serve other purposes in addition to relieving some of the financial burden of caregiving. That is, they can induce a shift from paid to unpaid but subsidised care, and modify pre-existing intergenerational transfer arrangements. This is especially the case when some implicit ''exchange motivation'' (or ''care for money)'' arrangement is present.
Our study uses evidence from the Spanish 2007 reform, a quasi-natural experiment leading to the universalisation of a caregiving subsidy in 2007 (which modifies the relative financial position of the recipient of care), probably one of the most important ones of the last decade, and the subsequent reduction of the subsidy in the middle of the 2012 austerity reforms, which reduced the subsidy by between 15 and 25%.
The evidence in Figure 1 shows that after the implementation of the reform, the population that relies on cash benefits increased steadily to 50% until in 2012, and it then declined after that date amid the austerity reforms.
Our analysis suggests that the introduction of a universal and unconditional caregiving allowance in 2007 increased the probability of informal caregiving by 31%, the probability of downstream (outflows) intergenerational transfers by 29%, together with a 10% reduction in the probability of upstream (inflow) transfer.
The effects are heterogeneous among income quintiles, health status and region of implementation. Overall, we estimate that the (unexpected) expansion of informal caregiving that resulted increased expenditure in long-term care by 20%, but that such expenditure expansion was attenuated by 7% reduction attributable to the spending cuts associated with 2012 austerity reforms.
We conclude that caregiving subsidies can significantly alter the decision to provide care and financially support household members. The universal nature of caregiving allowances might have entailed an incentive for previous non-caregivers to provide care, whether they were motivated by a ''unsatisfied demand for being cared informally'', provided that the family delivers a higher quality (information and emotional advantage) of care, or by the search for the extra income provided by the paid nature of informal care, namely ''caregiving moral hazard''.
Thinking of incentivizing care? The effect of demand subsidies on informal caregiving and intergenerational transfers – Joan Costa-Font, Sergi Jiménez-Martínez and Cristina Barcelona Vilaplana-Prieto GSE Working Paper 929, Barcelona Graduate School of Economics