Transcript National Transfer Accounts: An Overview

Intergenerational Transfers,
Aging, and the Economy
Andrew Mason
University of Hawaii at Manoa
& East-West Center
National Transfer Accounts
1
Three Features of our Societies
Motivate the NTA Project
► Changes
in population age structure
 Large national, regional, and global changes
► Economic
lifecycle
 Extended periods of dependency
 Many other aspects of economic behavior are age
dependent
► Complex
systems
and varied intergenerational economic
 Families, firms, markets, the state, and civil society all
play a role.
 Important implications for poverty, economic growth,
and generational equity.
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National Transfer Accounts
Goals of the NTA Project
► Develop
a system of economic accounts that
quantifies intergenerational flows in a
comprehensive fashion.
► Estimate the accounts with historical depth for
economies with different cultures, levels of
development, economic systems and policies.
► Analyze and explain
 variation in the economic lifecycle and the
intergenerational economic systems,
 macroeconomic effects of population aging,
► Improve
policy related to pensions, health care,
education, and fertility.
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National Transfer Accounts
Outline
I.
II.
III.
IV.
Population Age Structure
Economic Lifecycle
Flows and Lifecycle Wealth
NTA and Intergenerational Systems
4
National Transfer Accounts
I. Population Age Structure
► Population
age structure is a feature of the
demographic transition
 Very young populations due to high fertility
decline in infant and child mortality
 Large working-age share as large cohorts of
children reached adulthood
 Old populations as old-age survival increased
and fertility reached low levels.
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National Transfer Accounts
40
1950
P ercen t 60+
30
25-59 more
than half
20
Younger
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
Percentage of population under age 25 and 60+; bubble proportional to population.
Source: UN World Population Prospects, 2006.
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National Transfer Accounts
40
1960
P ercen t 60+
30
25-59 m ore
20
than half
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
7
National Transfer Accounts
40
1970
P ercen t 60+
30
Large birth cohorts
become workers
25-59 m ore
20
than half
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
8
National Transfer Accounts
40
1980
P ercen t 60+
30
25-59 m ore
20
than half
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
9
National Transfer Accounts
40
1990
P ercen t 60+
30
25-59 m ore
20
than half
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
10
National Transfer Accounts
40
Pop
Aging
P ercen t 60+
30
2000
25-59 m ore
20
than half
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
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National Transfer Accounts
40
2010
P ercen t 60+
30
25-59 m ore
20
than half
10
0
0
10
20
30
40
50
60
70
80
-10
P e rce n t < 25
12
National Transfer Accounts
40
2020
P ercen t 60+
30
25-59 m ore
than half
20
10
0
0
10
20
30
40
50
60
70
80
P e rce n t < 25
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National Transfer Accounts
40
2030
P ercen t 60+
30
25-59 m ore
than half
20
10
0
0
10
20
30
40
50
60
70
80
P e rce n t < 25
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National Transfer Accounts
40
2040
P ercen t 60+
30
25-59 m ore
than half
20
10
0
0
10
20
30
40
50
60
70
80
P e rce n t < 25
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National Transfer Accounts
40
2050
Working ages declined
P ercen t 60+
30
25-59 m ore
than half
20
10
0
0
10
20
30
40
50
60
70
80
P e rce n t < 25
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National Transfer Accounts
1.2
1
Labor Income
0.8
0.6
Consumption
0.4
0.2
National Transfer Accounts
Note: Based on estimates for Costa Rica,
Indonesia, Taiwan, and Thailand.
90
84
78
72
66
60
54
48
42
36
30
24
18
12
6
0
0
Relative to labor income(30-49)
II. The Economic Lifecycle
Per Capita Consumption and Production
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3 Population Age Distributions
Population Age Distribution, 2005
0.04
China
Proportion
0.03
Kenya
Germany
0.02
0.01
0
0
10
20
30
40
50
60
70
80
90
100
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National Transfer Accounts
Aggregate Lifecycle
G e rm a n y, A g g re g a te C a n d Yl
K e n ya , A g g re g a te C a n d Yl
0.02
0.016
0.018
0.014
0.016
0.012
Labor Inc ome
Labor Inc ome
0.014
0.01
0.012
0.01
0.008
0.008
0.006
0.006
Cons umption
0.004
0.004
Cons umption
0.002
0.002
0
0
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
• Based on per capita profile for developing countries weighted by UN
estimates of 2005 age structure.
• Two features are of interest
• Overall dependency: Total difference between labor income and
consumption.
• Direction of IG flows: Do flows to children or the elderly dominate?
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National Transfer Accounts
Lifecycle Deficit: Kenya 2005
Kenya
0.014
0.012
0.01
0.008
0.006
0.004
0.002
0
-0.002
-0.004
0
10
20
30
40
50
60
70
80
90
100
-0.006
• Intergenerational flows are heavily downward.
• Kenya’s LC surplus is much smaller than its deficit; extra
consumption could be funded from asset income (or net transfers
from the rest of the world). Impact on saving.
• Alternatively people could work more or consume less than in the
standard profile. Difficult to balance without spending less on
children. Impact on human capital.
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National Transfer Accounts
Lifecycle Deficit: Germany 2005
Germany
0.006
0.004
0.002
0
-0.002
0
10
20
30
40
50
60
70
80
90
100
-0.004
-0.006
-0.008
-0.01
• Intergenerational flows in both directions are important.
• Germany’s surplus is slightly smaller than its deficit; extra
consumption must be funded from asset income (or net transfers
from the rest of the world).
• Alternatively people could work more or consume less than in the
standard profile.
• Note that results will differ when per capita lifecycle for Germany
is used.
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National Transfer Accounts
Future Lifecycle Deficit:
Germany 2050
Germany 2050
0.008
0.006
0.004
0.002
0
-0.002
0
10
20
30
40
50
60
70
80
90
100
-0.004
-0.006
• Intergenerational flows to elderly have increased relative to flows
to the young.
• Germany’s overall deficit has grown to 10% of labor income.
Almost as large as Kenya’s 2005 deficit.
• How this will influence the German economy and other aging
societies will depend on the systems used to reallocate resources
across generations.
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National Transfer Accounts
III. Flows and Lifecycle Wealth
► Understanding
the relationship between flows and
wealth is very important
 Generational equity: What is the value of the IG
transfers we will receive from future generations as
compared with the value of the IG transfers we will give
to future generations?
 Economic growth: One form of wealth is capital which
is a central element in economic growth.
 Fiscal sustainability: Implicit debt, a negative form of
wealth, is used to assess the sustainability of transfer
programs (Generational Accounts, for example).
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National Transfer Accounts
Flows and Lifecycle Wealth:
A simple thought experiment
►
►
►
Your granary receives 10
metric tons of grain every
Fall.
You sell all of the grain, at
a constant rate, during the
subsequent 12 months.
What is the average stock
of grain (wealth)?
Source: Wikipedia.
Answer: Annual flow X (Date sold – Date purchased)
10 tons/year X ½ year = 5 tons.
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National Transfer Accounts
Flows and Wealth in NTA
► Under
very special circumstances (golden
rule growth), wealth for any
intergenerational flow is given by:
► Wealth = Annual flow X (Mean age of inflow
– mean age of outflow)
► Form of wealth depends on IG system
 Saving  real assets
 Transfers  transfer wealth (the present value
of net transfers)
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National Transfer Accounts
Flows and Lifecycle Wealth: Golden
Rule
0.015
0.01
0.005
0
0
10
20
30
40
50
60
70
80
90
100
-0.005
-0.01
-0.015
10.6
41.9
79.1
Note. Flows as a share of aggregate labor income.
Downward flow implies LC debt of 0.130 X -31.3 years = -4.09 times total labor income
Upward flow implies LC wealth of 0.235 X 37.2 years = 8.76 times total labor income
Note: Calculation is based on assumption that mean age of outflows is the same for
children and the elderly. This will not be the case in general.
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National Transfer Accounts
Observations re Lifecycle Wealth
►
Lifecycle pension wealth includes
 Assets accumulated to fund retirement
 Value of net transfers from future generations on which retirees will rely
 Bequests are treated separately.
►
►
►
Child lifecycle wealth is value of net transfers received by future
generations during their childhood
Total transfer wealth provides a comprehensive measure of the
generational stance of transfers. Neutral if pension and child transfer
wealth are equal and of opposite sign.
In Germany example, neutrality realized if LC pension wealth consists
of 4.09 transfer wealth and 4.87 capital. This level of capital would be
insufficient to achieve golden rule growth. Bequests can resolve this
problem – capital not used to finance lifecycle needs and is transferred
from one generation to the next.
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National Transfer Accounts
IG Flows and Wealth
► Calculation
of transfer wealth in more realistic
cases requires projection, forecast, or simulation
of public and private transfers.
► Simulation studies consistently show that the
demand for wealth increases as populations age.
► However, the effect on assets (capital) is sensitive
to policy towards old-age support systems.
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National Transfer Accounts
Simulation of Lifecycle Pension Wealth
and Assets, China, 1960-2050
W e a lth re la tiv e to la b o r in c o m e
14
12
P e nsio n w e a lth (hig h)
10
A sse ts (hig h)
8
6
P e nsio n w e a lth (lo w )
4
2
A sse ts (lo w )
0
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
China’s population and economic lifecycle for developing world, technological change of
2% per annum, open economy. High scenario: two-thirds of lifecycle pension wealth
consists of assets. Low scenario: one-third of lifecycle wealth consists of assets. For a
detailed description of the simulation model see Mason and Lee (2007).
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National Transfer Accounts
Implications of Age Structure and
Economic Lifecycle
Changes in age structure have a direct effect on standards
of living by influencing the share of the population in the
working ages – first demographic dividend.
► Population aging leads to a decline in the share of the
working ages, adversely affecting standards of living.
► However, population aging also leads to an increase in the
demand for lifecycle wealth. If this is met through
increased saving and a rise in K/GDP, the result may be
permanently higher standards of living – a second
demographic dividend.
► Critical issue – old age support system.
►
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National Transfer Accounts
IV. National Transfer Accounts: A System for
Measuring Intergenerational Flows
► NTAs
provide aggregate measures of the economic
lifecycle and intergenerational economic flows
► Comprehensive approach:
 All mechanisms for shifting resources from one age
group to another are incorporated into the accounts.
 Both public and private institutions are incorporated.
The role of the family is emphasized.
► NTA
is consistent with and complementary to NIPA
and GA.
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National Transfer Accounts
Important Features of NTA
► NTA
consists of 4 accounts
 Flow Account measures the economic flows to and from
each age group during a calendar or fiscal year.
 Asset Transfer Account measures bequests and other
asset transfers.
 Wealth Revaluation Account measures the changes in
wealth due to changes in asset prices, interest rates,
and public policy.
 Wealth Account measures the wealth associated with
each flow – assets and transfer wealth.
► Emphasis to date is on the flow account.
► Flow account is governed by the flow identity.
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National Transfer Accounts
The Flow Account Identity
► Inflows
► Outflows
 Labor Income
 Asset Income
 Transfer Inflows
 Consumption
 Saving
 Transfer Outflows


Y (a )  Y (a )   (a )  C (a )  S (a )   (a )
l
a
Inflow s
O utflow s


C (a )  Y (a )  Y (a )  S (a )   (a )   (a )
l
Lifecycle D eficit
a
A sset-based R eallocation s
N et T ransfers
A ge R eallocations
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National Transfer Accounts
A Classification of NTA Reallocations.
Asset-based Age Reallocations
Capital and Other
Non-Financial
Assets
Public
Public infrastructure
Public land and subsoil minerals
Private
Housing
Consumer durables
Factories, Farms
Private land and
sub-soil minerals
Inventories
Credit
Transfers
Public debt
Student
loans
Money
Public education
Public health care
Unfunded pension plans
Consumer
credit
Familial support of
children and parents
Bequests
Charitable contributions
Source: Mason, Lee et al. (forthcoming); adapted from Lee (1994).
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National Transfer Accounts
The Elderly and Upward
Intergenerational Flows
► Three
important sources
 Private (familial) transfers
 Public transfers
 Asset-based reallocations (saving)
► An
Exercise: Locate your country and
explain why. (Handout Old-age IG Flow
Chart)
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National Transfer Accounts
Saving
Familial
Transfers
Old-Age IG Flow Systems
Public
Transfers
36
National Transfer Accounts
Saving
The Results
Familial
Transfers
Old-Age IG Flow Systems
Public
Transfers
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National Transfer Accounts
Old-age Reallocation System, Selected Countries.
Familial transfers equally
important in Thailand, Korea,
and Taiwan (36-40%).
Net public transfers to
elderly are zero in Thailand;
about 25% in Taiwan and
Korea.
100
0
Net familial transfers
near zero in US, CR,
and J. Large public
transfers in CR and
J. More reliance on
assets in CR & US.
25
75
Public
transfers (%)
Thailand
US
50
Asset-based
(%)
50
Korea
Taiw an
Costa Rica
Japan
75
25
100
0
100
75
50
Fam ily Transfers (%)
25
0
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National Transfer Accounts
Old-age Reallocation System, Selected Countries.
100
Reliance on assets
in old-age
0
25
75
Public
transfers (%)
Thailand
US
50
Asset-based
(%)
50
Korea
Taiw an
Costa Rica
Japan
75
25
100
0
100
75
50
Fam ily Transfers (%)
25
0
39
National Transfer Accounts
Old-age Reallocation System, 65 to 85-year-olds,
Taiwan, 2003.
100
65-year-olds
67% assets, 2%
public, 32% private
0
25
75
Public
transfers (% )
50
50
Asset-based
(% )
75
25
85-year-olds
23% assets, 39%
public, 38% private
100
0
100
75
50
Family Transfers (% )
25
0
40
National Transfer Accounts
Old-age Reallocation System, 75-year-olds,
Taiwan, 1977-2003.
Asset-based
reallocations and public
transfers have increased
over time; familial
transfers have declined
precipitously.
100
0
NHI began in 1995;
net public transfers
increased.
25
75
Public
transfers (% )
50
50
Asset-based
(% )
1977-1994
75
1995-2003
25
100
0
100
75
50
Family Transfers (% )
25
0
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National Transfer Accounts
Summary
► Intergenerational
flows are large
► Magnitude and direction of IG flows are
changing in unprecedented ways
► IG systems vary widely and are changing
► Important implications for




Generational equity
Standards of living
Investment in human and physical capital
Fiscal sustainability
42
National Transfer Accounts
Further Reading
Conceptual Foundations
Lee, R. (2003). “Demographic Change, Welfare, and Intergenerational Transfers: A Global Overview.”
GENUS LIX(3-4): 43-70.
Lee, R. D. (1994). The Formal Demography of Population Aging, Transfers, and the Economic Life Cycle.
Demography of Aging. L. G. Martin and S. H. Preston. Washington, D.C., National Academy Press: 849.
Willis, R. J. (1988). Life cycles, institutions and population growth: A theory of the equilibrium interest
rate in an overlapping-generations model. Economics of Changing Age Distributions in Developed
Countries. R. D. Lee, W. B. Arthur and G. Rodgers. Oxford, Oxford University Press. 106-38.
Empirical Studies
Bloom, D. E. and J. G. Williamson (1998). “Demographic Transitions and Economic Miracles in Emerging
Asia.” World Bank Economic Review 12(3): 419-56.
Bloom, D. E. and D. Canning (2001). Cumulative Causality, Economic Growth, and the Demographic
Transition. Population Matters: Demographic Change, Economic Growth, and Poverty in the
Developing World. N. Birdsall, A. C. Kelley and S. W. Sinding. Oxford, Oxford University Press: 165200.
Kelley, A. C. and R. M. Schmidt (2007). Evolution of Recent Economic-Demographic Modeling: A
Synthesis. Population Change, Labor Markets and Sustainable Growth: Towards a New Economic
Paradigm. A. Mason and M. Yamaguchi. Amsterdam, Elsevier: 5-38.
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National Transfer Accounts
Further Reading (Cont)
Simulation Studies
Cutler, D. M., J. M. Poterba, et al. (1990). “An Aging Society: Opportunity or
Challenge?” Brookings Papers on Economic Activity 1990(1): 1-56.
Lee, R., A. Mason, et al. (2003). “From Transfers to Individual Responsibility:
Implications for Savings and Capital Accumulation in Taiwan and the United
States.” Scandinavian Journal of Economics 105(3): 339-357.
Mason, A. and R. Lee (2006). “Reform and support systems for the elderly in
developing countries: capturing the second demographic dividend.” GENUS
LXII(2): 11-35.
NTA Fundamentals
Mason, A., R. Lee, et al. (forthcoming). Population Aging and Intergenerational
Transfers: Introducing Age into National Accounts. Developments in the
Economics of Aging. D. Wise. Chicago, NBER and University of Chicago Press.
Lee, R., S.-H. Lee, A. Mason (2008). Charting the Economic Lifecycle. Population
Aging, Human Capital Accumulation, and Productivity Growth, a supplement to
Population and Development Review 33. A. Prskawetz, D. E. Bloom and W.
Lutz. New York, Population Council: 208-237.
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National Transfer Accounts
Acknowledgement
Support for this project has been provided by the following
institutions:
► the John D. and Catherine T. MacArthur Foundation;
► the National Institute on Aging: NIA, R37-AG025488 and
NIA, R01-AG025247;
► the International Development Research Centre (IDRC);
► the United Nations Population Fund (UNFPA);
► the Academic Frontier Project for Private Universities:
matching fund subsidy from MEXT (Ministry of Education,
Culture, Sports, Science and Technology), 2006-10,
granted to the Nihon University Population Research
Institute.
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National Transfer Accounts
The End
National Transfer Accounts
46