Population Aging and Intergenerational Transfers: Introducing Age into National Accounts

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 Mason, Lee, Tung, Lai, and Miller

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

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 Mason, Lee, Tung, Lai, and Miller

Lifecycle Deficits—aggregate, not per capita Mason, Lee, Tung, Lai, and Miller

TABLE 1 Resource Reallocation Across Age and Time Mason, Lee, Tung, Lai, and Miller

Theoretical roots in • Samuelson overlapping generations • Gale • Willis • Lee Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

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. Mason, Lee, Tung, Lai, and Miller

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. Mason, Lee, Tung, Lai, and Miller

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. Mason, Lee, Tung, Lai, and Miller

Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

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. Mason, Lee, Tung, Lai, and Miller

NTA Accounting Identity (1) (2) A = K + M S = IK + IM Mason, Lee, Tung, Lai, and Miller

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. Mason, Lee, Tung, Lai, and Miller

Pub trans Asset realloc Inter vivos bequests Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

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. Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

Another illustration of what can be done with historical depth and projections Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

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 Mason, Lee, Tung, Lai, and Miller

USA and France: A Comparison (Stephane Zuber) NPVs for the US NPVs for France Mason, Lee, Tung, Lai, and Miller

USA and France: Accounting for the differences (1) Spending as Percent of GDP: US Spending as Percent of GDP: France Mason, Lee, Tung, Lai, and Miller

The End Mason, Lee, Tung, Lai, and Miller

Population Aging and Intergenerational Transfers: Introducing Age into National Accounts