Presentation in Honor of Richard
Easterlin’s Continuing
Contributions: A MacroPerspective on Intergenerational
Transfers
Ronald Lee
UC Berkeley
Material from NTA project, funded by NIA
grants to Andy Mason and Ron Lee
April 1, 2006
1
References – downloadable from
http://www.schemearts.com/proj/nta/web
/nta/show/Working%20Papers
• Ronald Lee and Andrew Mason, “A Research Plan for the
Macroeconomic Demography of Intergenerational Transfers”, January
2004.
• Antoine Bommier, Ronald Lee, Timothy Miller, and Stephane Zuber,
“Who wins and who loses? Public transfer accounts for US generations
born 1850 to 2090”, December 2004.
• Andrew Mason, Ronald Lee, An-Chi Tung, Mun-Sim Lai, and Tim
Miller, forthcoming. “Population Aging and Intergenerational Transfers:
Introducing Age into National Accounts”, Economics of Aging Series,
David Wise, ed. NBER and University of Chicago Press.
• Ronald Lee, Sang-Hyop Lee, and Andrew Mason. “Charting the
Economic Life-Cycle”, November 2005 (under review)
April 1, 2006
3
1. Reallocation of income across age
groups
• Flows of income from individuals of one age to
those of another age are a pervasive part of our
everyday life, but from the point of view of
national accounts they are largely invisible.
• Some of these flows are attracting a lot of
piecewise attention in terms of micro level
motivations (investment in children, care for
elderly parents, bequests, Social Security,
Medicare)
• Big picture is largely ignored.
April 1, 2006
4
2. The economic life cycle: Labor
earnings and consumption per capita
Output
per
person
per year
Labor
earnings, yl(x)
+++
+++
Consumption,
c(x)
-- - -
-- -
-- - - -
-- - - Age
April 1, 2006
5
3. Resource Reallocation Across Age and Time
Form of
Reallocation
Institution
Family
Market
Public Sector
Capital
House
Car
Consumer
Durables
Inventories
Education
Factories
Inventories
Farms
Social
Infrastructure
(Hospitals, Roads,
Airports, Govt.
Bldgs)
Transfers
Child Rearing
College Costs
Gifts
Bequests
Help to Elderly
Government Debt
Public Education
Medicaid,
Medicare
Social Security
Food Stamps
AFDC
Borrowing/
Lending
Familial Loans
Credit Markets
"Transfers" with (mortgages, credit
a quid pro quo
cards, bond issues)
April 1, 2006
Government Loans
6
4. A Fundamental Change: The
Historical Reversal of Direction of
Flows
• Some production and consumption profiles
have been estimated
• Direction of flows is indicated by the
population weighted average ages of
consumption and production
• See various articles for theory and
mathematical framework
• Here go straight to results
April 1, 2006
7
+3
-2
April 1, 2006
2050
United States [Lee & Miller]
Lee, 2000, 2003 (see cv)
8
April 1, 2006
9
5. Estimated age profiles of
production and consumption
• These come from NTA project
• Research by teams working on US and
Taiwan
• Looks simple; actually a great deal of
analysis lies behind them.
April 1, 2006
10
April 1, 2006
11
April 1, 2006
12
What institutions and mechanisms
provide the flows that support these
consumption patterns?
• Source by age
–
–
–
–
Inter vivos familial transfers
bequests
Public transfers
Through assets (credit and capital)
April 1, 2006
13
April 1, 2006
Source: See Lee, Lee and Mason (2005).
14
April 1, 2006
Source: See Lee, Lee and Mason (2005).
15
Figure 5b. Components of Individual Age Reallocations, Taiwan,
1998
Reallocations ($NT thousands) .
Bequests
700
600
500
400
300
200
100
0
-100
-200
-300
-400
Inter Vivos Transfers
Public Transfers
Asset Reallocation
Total Inflows
Total Outflows
0
10
20
30
40
50
60
70
80
90+
Age
Mason, Lee, Tung, Mun-Sim Lai, and Miller (2005)
April 1, 2006
16
Figure 6b. Components of Individual Age Reallocations,
US, 2000
Bequests
Inter Vivos Transfers
Public Transfers
Asset Reallocation
Reallocations ($US thousands) .
70
60
Total Inflows
50
40
30
20
10
0
-10
-20
Total Outflows
-30
-40
0
10
20
30
40
50
60
70
80
90+
Age
April 1, 2006
Mason, Lee, Tung, Mun-Sim Lai, and Miller (2005)
17
How the elderly fund consumption
Percentage of Consumption .
Figure 1. How the Elderly Finance Consumption in the US and
Taiwan (Age 65+)
140
120
13.1
Work
61.8
Asset Reallocations
42.5
Inter Vivos Transfers
33.2
Public Transfers
23.3
Bequests
-14.1
100
80
15.1
60
40
20
0
4.4
35.3
-14.6
-20
-40
USA (2000)
Taiwan (1998)
Mason, Lee, TungMun-Sim Lai, and Miller (2005)
April 1, 2006
18
Another illustration of what can be
done with historical depth and
projections
April 1, 2006
19
Net Present Values of Benefits minus
Taxes for Generations
• 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
April 1, 2006
20
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
April 1, 2006
See Bommier, Lee, Miller and Zuber
21
USA and France: A Comparison (see Stephane Zuber)
15
10
5
0
NPVs for the US
-5
-10
Education
Public Pensions + Health Benefits
-15
Combined
18
50
18
60
18
70
18
80
18
90
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
20
00
20
10
20
20
20
30
20
40
20
50
20
60
20
70
20
80
20
90
-20
Year of Birth
15
10
5
0
NPVs for France
-5
Education
-10
Public Pensions + Health Benefits
Combined
-15
-20
18
50
18
60
18
70
18
80
18
90
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
20
00
20
10
20
20
20
30
20
40
20
50
20
60
20
70
20
80
20
90
April 1, 2006
Year of Birth
22
18
50
18
60
18
70
18
80
18
90
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
20
00
20
10
20
20
20
30
20
40
20
50
20
60
20
70
20
80
20
90
21
00
21
10
21
20
21
30
21
40
21
50
21
60
21
70
21
80
21
90
22
00
18
5
18 0
6
18 0
7
18 0
8
18 0
9
19 0
0
19 0
1
19 0
2
19 0
3
19 0
4
19 0
5
19 0
6
19 0
7
19 0
8
19 0
9
20 0
0
20 0
1
20 0
2
20 0
3
20 0
4
20 0
5
20 0
6
20 0
7
20 0
8
20 0
9
21 0
0
21 0
1
21 0
2
21 0
3
21 0
4
21 0
5
21 0
6
21 0
7
21 0
8
21 0
9
22 0
00
35
10
10
USA and France: Accounting for the differences (1) see
Stephane Zuber
30
25
20
15
Education
Spending as Percent of GDP:
US
Social Security
Medicare
5
0
Year
35
30
25
20
15
Education
Spending as Percent of GDP:
France
Public Pensions
Health Benefits
5
0
April 1, 2006
Year
23
The End
April 1, 2006
24