Informal Transfers in Comparisons of Monetary Welfare and Its Distribution

The Luxembourg Income Study (LIS) data is expanding to cover "middle income" countries that supplement the large, existing sample of countries which are "high income" in the LIS Database. Developing countries tend to have social protection systems that are less formalized, and financial transfers often flow between households. Inter-household financial transfers may play a significant role on a household's economic resources. These differences in transfers mean that comparisons of countries' poverty profiles and inequality levels can be heavily influenced by how such payments are taken into account. This research looks at the level of payments of transfers in both formal and informal ways and how the transfers affect the international and subnational comparison of inequality in China, Peru, Dominican Republic, Germany, United Kingdom and United States. Based on the data from the LIS Database, this paper addresses how important inter-household transfers are to the household's overall income, the differences discounting such transfers makes to the comparison of monetary welfare across countries and to the national distributions and how the comparisons of the welfare of specific sub-groups are affected by discounting such transfers.