INTERGENERATIONAL REDISTRIBUTION IN A GROWING WELFARE STATE

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INTERGENERATIONAL REDISTRIBUTION IN A GROWING
WELFARE STATE
Thomas Pettersson, Tomas Pettersson Anna
Westerberg Ministry of Finance Supported
by Klas Lindström Leif Johansson Statistics
Sweden
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Financial flows between the household and public
sector 2006
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Public sector development

• Public transfers and subsidized activities
  affecting different parts of the life cycle has
  been introduced at different periods
• all generations has not received the same support
  services
• Taxes and contributions has been introduced and
  reformed
• The age structure of public finances has varied
• Public deficits and surpluses
• Unequal sized cohorts

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Is there a generational imbalance?

• Hypotheses 1
• The public sector development coincides with the
  lifecycle of the 1940s baby boomers
• Younger generations has suffered from cut backs
• Hypotheses 2
• The baby boomer entered the labor market at young
  ages and will retire late
• Younger generations has shorter working lives

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Methodology

• Calculate lifetime net transfers between
  individuals and the public sector aggregate at
  cohort level
• Historical transfers
• Future transfers
• Include all of the consolidated public finances
• allowing effects of public deficits/surpluses

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Limitations

• Only direct financial effects
• Public sector transfers only
• Housing effects only through taxes and capital
  gains

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History

• Micro data
• LINDA
• a panel of the Swedish population
• that reaches back to 1968
• including information of market income, direct
  taxes and transfers
• the panel is artificially extended back to 1930

• Macro data
• National Accounts
• is used to impute components not covered by the
  micro data
• before 1968 most components are collected from NA
• when available known age-profiles are used,
  otherwise equal amount among all adults
• tax records are used to impute an income
  distribution

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The future

• Macro data FIMO
• a saving balance model
• that updates NA
• assuming unchanged policy and behavior
• but allowing demographically driven processes to
  come into effect
• comprises the household, public, enterprise and
  foreign sectors
• expenditure in one sector is matched by an income
  in another sector

• Micro data - SESIM
• a dynamic microsimulation model
• that updates a cross section of the initial
  population (1999)
• at an annual basis - discrete time
• using mainly estimated equations and some
  transition matrices
• using techniques for alignment and reduction of
  variance
• www.sesim.org

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Lifetime net transfers
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Lifetime market incomes
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Lifetime consumption possibilities
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Lifetime net transfers for high- and low income
earners
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Main findings

• Redistribution between generations exists..
• 1940ers are the least favored generation, late
  1960ers and early 1970ers also have week
  positions
• 1930ers and 1980ers are the most favored
  generations
• ..but the redistribution is small.
• public sector redistribution between generations
  is small compared to market income as well as to
  redistribution within generations