Population Aging and Intergenerational Transfers: Introducing Age into National Accounts

May 13, 2005 Mason, Lee, Tung, Lai, and Miller 1

Population Aging and Intergenerational Transfers:

Introducing Age into National Accounts Andrew Mason,

University of Hawaii and East West Center

Ronald LeeUniversity 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


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


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


Figure 1(a). Consumption and Labor Income, Aggregate Values, Taiwan, 1998,

0

50

100

150

200

250

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+

Age

NT$

Bill

ions

.

Labor Income

ConsumptionReallocations

Lifecycle Deficits—aggregate, not per capita


TABLE 1 Resource Reallocation Across Age and Time

Mechanism

Family

Institution

Market 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


Theoretical roots in

• Samuelson overlapping generations

• Gale

• Willis

• Lee


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


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


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.


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.


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.


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


Figure 2. Lifecycle of Production (labor earnings) and Cons, Per Capita, US 2000 and Taiwan 1998

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+

Age

Rel

ativ

e to

Ave

rag

e P

rod

uct

ion

Ag

e 20

to

40

.

Production, Taiwan

Production, US

Consumption,US

Consumption, Taiwan


Differences in lifecycle profiles are large

1. In Taiwan low labor income due to low labor force participation among women in their mid-40s and late 50s.

2. 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


Figure 4. Lifecycle Deficits, Taiwan 1998 and US 2000, per capita

-1.0

-0.5

0.0

0.5

1.0

1.50 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

Life

cycl

e de

ficit

. US

Taiwan

Note: The lifecycle deficit is the difference between per capita labor income and consumption. Expressed relative to the simple mean of average production for those 20-40.


• 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.

Implication


NTA Accounting Identity

Asset reallocationsLifecycle deficit Net public transfers Net private transfers

Net transfers

Age reallocations

lg g f fC y rA S

( ) .lg f K M g fy r K M C I I (1)

(2)

A = K + M

S = IK + IM


• 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.


Figure 5a. Components of Aggregate Age Reallocations, Taiwan, 1998

-150

-100

-50

0

50

100

150

0 10 20 30 40 50 60 70 80 90+

Age

Rea

llo

cati

on

s ($

NT

bil

lio

ns)

Bequests Inter Vivos Transfers Public Transfers Asset Reallocation

Total Inflows

Total Outflows

Inter vivos

Pub trans

Asset realloc

bequests


Figure 5b. Components of Individual Age Reallocations, Taiwan, 1998

-400

-300-200

-100

0

100200

300

400

500600

700

0 10 20 30 40 50 60 70 80 90+

Age

Rea

llo

cati

on

s ($

NT

th

ou

san

ds)

.


Total Inflows

Total Outflows


Figure 6a. Components of Aggregate Age Reallocations, US, 2000

-150

-100

-50

0

50

100

150

0 10 20 30 40 50 60 70 80 90+

Age

Rea

llo

cati

on

s ($

US

bil

lio

ns)

.


Total Inflows

Total Outflows


Figure 6b. Components of Individual Age Reallocations, US, 2000

-40

-30

-20

-10

0

10

20

30

40

50

60

70

0 10 20 30 40 50 60 70 80 90+

Age

Rea

llo

cati

on

s ($

US

th

ou

san

ds)

.


Total Inflows

Total Outflows


Per Capita Asset Reallocations, US 2000 and Taiwan 1998

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.420 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88

Ass

et R

eall

oca

tio

ns/

C(2

0-40

) .

US

Taiwan

Note: Values normalized on simple average of per capita consumption for 20-40-year-olds.


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


Figure 8. Finance of Consumption, Old Dependents (Age 65+)

35.323.3

61.842.5

-14.6 -14.1

4.4 33.2

15.113.1

-40

-20

0

20

40

60

80

100

120

140

USA (2000) Taiwan (1998)Perc

enta

ge o

f Con

sum

ptio

n .

Public Transfers

Inter Vivos Transfers

Work

Bequests

Asset Reallocations


• 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.

Observations


Limitations

1. Consumption age profile is hard to estimate

• Available estimation methods problematic

(Engel, Rothbarth, collective models)

2. Results are only one year analysis• Cannot determine age effect or cohort effect

3. Estimates are preliminary and methodologies are still being refined


Another illustration of what can be done with historical depth and

projections


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


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


USA and France: A Comparison (Stephane Zuber)

-20

-15

-10

-5

0

5

10

15

Year of Birth

Education

Public Pensions + Health Benefits

Combined

-20

-15

-10

-5

0

5

10

15

Ye ar of B irth

Education

Public Pensions + Health Benefits

Combined

NPVs for the US

NPVs for France


USA and France: Accounting for the differences (1)

0

5

10

15

20

25

30

35

Year

Education

Social Security

Medicare

Spending as Percent of GDP:US

0

5

10

15

20

25

30

35

Year

Education

Public Pensions

Health Benefits

Spending as Percent of GDP:France


The End

Population Aging and Intergenerational Transfers: Introducing Age into National Accounts

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