Population Aging and Intergenerational Transfers: Introducing Age into National Accounts

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Population Aging and Intergenerational Transfers
Introducing Age into National Accounts

• Andrew Mason,
• University of Hawaii and East West Center
• Ronald Lee
• University of California at Berkeley
• An-Chi Tung,
• Academia Sinica, Taiwan
• Mun Sim Lai,
• University of Hawaii and East West Center
• Tim Miller,
• University of California-Berkeley

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• Support from NIA R37-AG11761, and will be
  supported by parallel NIA grants to Lee
  (Berkeley) and Mason (Hawaii).

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Comparative International Scope

• Main NIA funded project, Lee and Mason teams for
  each country.
• United States
• Taiwan
• Japan
• Indonesia
• Chile
• Brazil
• France
• Additional countries funded by UNFPA, Ogawa at
  Nihon Univ.
• China
• India
• Philippines
• Thailand
• Individuals in additional countries may
  participate with own funding

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Lifecycle Deficitsaggregate, not per capita
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TABLE 1 Resource Reallocation Across Age and
Time
Mechanism Family InstitutionMarket Public Sector
Capital HouseCarConsumer DurablesInventoriesEducation Factories Inventories Farms Social Infrastructure(Hospitals, Roads,Airports, Govt. Bldgs)
Transfers Child RearingCollege CostsGiftsBequestsSupport of elderly Government Debt Public EducationMedicaid, MedicareSocial SecurityFood StampsAFDC
Borrow/Lend (Intertemporal Exchange) Familial Loans"Transfers" with a quid pro quo Credit Markets (mortgages, credit cards, bond issues) Government Loans
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Theoretical roots in

• Samuelson overlapping generations
• Gale
• Willis
• Lee

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Project Objectives

• Develop a National Transfer Account system that
  measures aggregate economic flows across age
  groups
• Market and non-market transactions
• Public and private (familial)
• Asset reallocations and transfers
• Estimate current and historical accounts
• Projections

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Project Objectives

• Estimate current and historical accounts in
  varying social, economic, and political contexts
• Develop projection models that can be used to
  assess the effects of economic change, aging,
  family systems, and public policy
• Study the evolution of support systems
• Study the macroeconomic consequences of aging and
  alternative support systems

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Additional objectives, questions

• Intergenerational equity as affected by changing
  public programs (pensions, privatization, health
  care, education, etc.)
• Broad descriptive generalizations about
  directions of flows across age over time and
  social structure, through different channels.
• Integrated picture of various channels through
  which children and the elderly derive resources
  public and private transfers, and saving and
  investment.
• Describe income reallocation through non-market
  mechanisms.

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Issues

• Why do support systems vary over time and space?
• What are the macroeconomic consequences of
  population aging?
• How do the effects of aging vary with the support
  systems in place?
• What are the implications of public reform?
  Changes in familial support systems?

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Some Estimation Issues

• Consumption age profile
• Available estimation methods problematic
• (Engel, Rothbarth, collective models)
• Education and health can be reliably estimated
• Productivity age profile
• Earnings may not reflect age variation in
  productivity
• Seniority wage system in Japan, for example.

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Hope that description of patterns and changes
will generate new stylized facts and provoke new
questions

• Next slide is an example sudden and dramatic
  shift in the direction of public transfers in the
  US between 1940 and 1970.

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Preliminary Results

• US in 2000 and Taiwan in 1998
• Data
• National Income and Product Accounts
• Administrative records for public agencies
• Household surveys of income, expenditure and
  assets
• Population surveys and censuses
• Methodology described in the paper
• Method covers stocks and flows here just look at
  flows

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Differences in lifecycle profiles are large

• In Taiwan low labor income due to low labor force
  participation among women in their mid-40s and
  late 50s.
• In US consumption of elderly high relative to
  non-elderly
• Health spending by US elderly is very high
• Non-health spending by US elderly is also much
  higher

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Implication

• Per capita lifecycle deficit of elderly is high
  in the US as compared to Taiwan
• Given the age profile, aging would have a much
  larger effect on the size of the total deficit of
  US elderly
• Thus, aging in the US would lead to a much
  greater increase in reallocations assets,
  transfers, or both than in Taiwan.

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NTA Accounting Identity
(1)
(2)
A K M S IK IM
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• These flow accounts can be integrated over
  age/time to generate corresponding stock accounts
  by age and in aggregate
• Credit or debt
• Capital
• Transfer wealth/debt
• The stocks from flows can sometimes be compared
  to direct measures of stocks as consistency check.

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Pub trans
Asset realloc
Inter vivos
bequests
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Are Asset Reallocations Consistent with Lifecycle
Saving Hypothesis?

• Yes
• Asset income important to the elderly
• No
• At working ages asset reallocations are positive
• Older adults do not dis-save
• Maybe
• In Taiwan asset reallocations indirectly support
  consumption by elderly by financing familial
  transfers

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Observations

• Strong similarities between US and Taiwan
• Importance of earnings
• Magnitude of bequests
• Asset reallocations are important
• Heavy reliance on private transfers in Taiwan
  potential source of vulnerability to population
  aging.

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Limitations

• Consumption age profile is hard to estimate
• Available estimation methods problematic
• (Engel, Rothbarth, collective models)
• Results are only one year analysis
• Cannot determine age effect or cohort effect
• Estimates are preliminary and methodologies are
  still being refined

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Another illustration of what can be done with
historical depth and projections
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Net Present Values of Benefits minus Taxes for
Generations

• Illustrate historical depth and projections for
  public sector
• Includes only Public Educ, Social Sec, and
  Medicare
• NPVs calculated based on
• estimates and projections of age specific taxes
  paid and benefits received, 1850-2200
• Discounted at 3 real
• actual or projected survival

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Net Present Value at birth of expected life time
benefits for Social Security, Medicare and Public
Education as of lifetime earnings, for
generations born 1850 to 2090
Total
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USA and France A Comparison (Stephane Zuber)
NPVs for the US
NPVs for France
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USA and France Accounting for the differences (1)
Spending as Percent of GDP US
Spending as Percent of GDP France
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The End