Transfers and Assets in the
Economic Lifecycle: NTA
Evidence
Economics Department Seminar
Andrew Mason
October 17, 2007
A Quick Overview of
National Transfer Accounts (NTA)
• NTAs provide aggregate measures of the
economic lifecycle and economic flows across
age
• 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.
• Accounts are governed by a flow identity.
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


Inflows
Outflows
C (a )  Y l (a )  Y a (a )  S (a )    (a)    (a)
Lifecycle Deficit
Asset-based Reallocations
Net Transfers
Age Reallocations
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).
Implementation
• Research teams in 25 countries are constructing
NT accounts.
• Project directors are Ron Lee (CEDA, UCBerkeley) and Andy Mason (UH Econ and EWC)
• Funded by National Institute on Aging,
International Development Research Center,
United Nations Population Fund, MacArthur
Foundation, MEXT Academic Frontier grant to
Nihon University Population Research Institute.
Issue: What is the role of assets in
the economic lifecycle?
• Conventional wisdom: accumulation of assets
during the working years is an important means
by which individuals provide for their retirement.
• How important is retirement saving in the US
and other industrialized countries? How
important in developing countries? Do assets
play other lifecycle roles that have been
overlooked? These questions will be considered
in light of new evidence based on National
Transfer Accounts.
Warnings
•
•
•
•
Estimates are preliminary
Cross-national comparisons
Unclear whether age or cohort effects
One point in time (not all countries have
same year) – could be looking at year
effects.
The Role of Assets in the
Simple Lifecycle Model
• Examples: Modigliani, Gordon
Principles, Mankiw Intermediate
Macroeconomics.
• Storyline: Labor income is shifted
to older ages by accumulating
assets using surplus labor
income. Retirement funded from
asset-income and dis-saving.
• Widely recognized that public
transfers may crowd out lifecycle
saving.
1. 2
Labor Income
1
Saving
0. 8
0. 6
Consumption
0. 4
0. 2
Dissaving
0
20s
30s
40s
50s
60s
70s
Age Profiles of Labor Income and Consumption: averaged for Four
Rich and Four Poor Countries (Relative to average labor income)
1.4
Rich: US, Japan, Sweden, Finland
Poor: India, Indonesia, Philippines, Kenya
National Transfer
Accounts data
1.2
Rich
Ratio to av yl(30-49)
1
0.8
0.6
0.4
poor
0.2
0
1
4
7
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91
Age (+1)
Theory Meets Reality
Aggregate Economic Lifecycle, Japan, 2004
12000
Yen (billions)
10000
8000
6000
78.8
trillion
4000
83.4
trillion
64.1
trillion
2000
0
0
10
20
Source: Ogawa et al. 2008.
30
40
50
60
70
80
90+
Theory Meets Reality
Aggregate Economic Lifecycle, US, 2003
250
Dollars (billions)
200
1.4
trillion
150
100
2.1
trillion
50
1.5
trillion
0
0
10
20
30
40
50
60
Source: Lee, et al. 2007; Lee, Mason, and Lee. 2008.
70
80
90+
Theory Meets Reality
Aggregate Economic Lifecycle, Philippines, 1999
70,000
Pesos (millions)
60,000
50,000
331
billion
40,000
960
billion
30,000
20,000
65.5
billion
10,000
0
0
10
20
30
Source: Racelis and Salas. 2007.
40
50
60
70
80
90+
Two Striking Features of LC
• The lifecycle deficit of children is very
large even in low fertility Japan
– Quantity-quality tradeoff
– Few children but high HK spending per child
– Implications of large deficits discussed later
• Old age deficit is much greater in Japan
and US as compared with Philippines
– Age structure only?
– Or are other factors important?
Old Age Deficit Normalized
Age Structure and Old Age Deficit
12
10
8
6
4
y = 21.134x - 2.2402
2
R = 0.9132
2
0
0
0.2
0.4
0.6
0.8
Pop 60+/Pop 30-59
LCD normalized on aggregate labor income/35.
Estimated elasticity of 1.54
• Economy aging more rapidly than
population.
• Many possible explanations, e.g.,
• Increased demand for leisure
• Increased demand for health care
• Political power of elderly.
Whatever the reasons the
demand for old-age
reallocation systems is
very substantial in old,
mostly high-income
countries.
I. Role of Assets and Transfers in
Old-age
Old-age Reallocation System,
Three Components
Assets
Asset income + dis-saving
= LCD;
Net public transfer and net
private transfers= 0.
1/3
Net private
transfers = LCD;
Asset-based
reallocations and
net public
transfers= 0.
Family
Transfer
s
2/3
2/3
1/3
0
2/3
1/3
Net public
transfers = LCD;
Asset-based
reallocations and
net private
transfers= 0.
Public
Transfer
s
Old-age Reallocation Systems, Seven Counties, Recent Year
Proportion of Old-age LC Deficit Funded by Assets and Transfers
Some Observations
• Public transfers and asset-based or
private transfers and asset-based.
• Time series data (not presented) shows
transition from public to private transfers in
Taiwan and Japan.
• Extent to which countries rely on assetbased transfers doesn’t correlate with
aggregate saving rates.
Funding the Old-age Deficit
Japan, 2004.
Major shift from asset-based
reallocations to transfers
For young elderly
familial transfers are
downward; for old
elderly they are
upward.
Funding the Old-Age Deficit,
Heavy reliance on
United States, 2004
asset-based
Assets
65
66
67
68
69
70
7475
72
71
73
1/3
76
77787980
883
1
82
84
85
86
87
88
89
90+
2/3
reallocations and
public transfers. Net
family transfers
downward.
2/3
1/3
Family
Transfer
s
2/3
Source: Lee, Lee and Mason. 2008.
1/3
Public
Transfer
s
Funding the Old-Age Deficit,
Finland, 2004
Net public transfers equal
or lifecycle deficit. Assetbased reallocations are
positive. Large
downward transfers.
Assets
1/3
2/3
84
2/3
1/3
89
73
77
69 72 75
66
68
67
70
71 76
65 74
Family
Transfer
s
2/3
1/3
79 88
82
78 87
83
86
81
90
Public
Transfer
s
Source: Risto and Vanne. 2008.
Net public transfers = LCD
Funding the Old-Age Deficit,
Chile, 1997
Assets
1/3
90+
2/3
65
89
66
88
87
1/3
Family
Transfer
s
Source: Bravo and Holz. 2007
2/3
1/3
67
7372
71
2/3
74
70 69 68
75
86
76
77
8579
80
78
83
81
82
84
Public
Transfer
s
Funding the Old-Age Deficit,
Thailand, 2004
No public transfers. Shift
from asset-based to family
transfers with age.
Assets
1/3
65
66
6771
68
70
69
72
73
2/3 74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90+
Family
Transfer
s
Source: Chawla. 2008.
1/3
2/3
2/3
1/3
Public
Transfer
s
Funding the Old-Age Deficit,
Taiwan, 1998
Assets
1/3
2/3
65
1/3
81
83
84
85
86
87
88
89
90+
2/3
67
66
68
69
71
70
7675
79
80 78 77
73 72
74
82
Family
Transfer
s
2/3
1/3
Source: Mason et al., forthcoming. www.ntaccounts.org.
Public
Transfer
s
Funding the Old-Age Deficit,
Philippines, 1999
67
68
69
Both net public
and net private
transfers are
downward.
Assets
70
71
72
73
74
75
76
77
78
2/3
79
80
81
82
8483
85
86
87
88
89
90+
1/3
2/3
1/3
Family
Transfer
s
2/3
Source: Racelis and Salas. 2007.
1/3
Public
Transfer
s
What might explain “shift” from
assets to transfers with age?
• Myopia: Elderly are running out of assets.
• Poor annuity markets; transfer systems
are insuring against longevity.
• Cohort effect, e.g., old people had lower
lifetime earnings and, hence, fewer assets.
• Capital transfers; elderly are transferring
assets to children and subsequently
receiving compensating current transfers.
II. Roles of transfers and asset-based
reallocations in supporting children
• Direct support for children is overwhelmingly through
public and private transfers
• In some countries direct support of child deficit realized
through credit transactions. School loans are an
example.
• Issue is the extent to which lifecycle deficit is funded
indirectly through assets income or dis-saving (on the
part of those making the transfers to children).
• An important piece of evidence was highlighted above –
the child deficit exceeds the lc surplus in many countries.
Comparison of LCD of Children to
Lifecycle Surplus of Adults
• Child deficit exceeds
70% of surplus in every
country except China
• In Latin America and
Southeast Asia child
deficits are large and
substantially exceed
the adult surplus.
25.00
Lifecycle Surplus
• EA and West
countries surplus
exceeds child deficit
except in the US and
Taiwan
LC Surplus vs Child Deficit
Surplus > LCD
20.00
EA
15.00
Surplus < LCD
LA
SEA
10.00
West
5.00
0.00
0.00
5.00
10.00
15.00
20.00
25.00
Child Deficit
Note. Surpluses and deficits are normalized on
aggregate labor income/35.
OLG Perspective on
Supporting Children
• Three generations (ages)
– Children (1)
– Workers (2)
– Retirees (3)
• Steady-state
• Dynamic efficiency, but not golden rule
Dynamic Efficiency, not Golden Rule,
Low Childrearing Costs
• Aggregate consumption
exceeds labor income
• Economy as a whole has
a lifecycle deficit
• Return to capital exceeds
to biological rate of
interest n.
• Funded pensions yield a
higher rate of return than
paygo pensions.
120
100
80
Yl
C
60
40
20
0
1
2
3
2
3
60
40
20
0
-20
-40
-60
1
Deficit
Surplus
Interage Flows:
A: Lifecycle Saving
Net transfers
Transfers by age
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
2
3
Asset-based flows by age
Net asset-based
inflows
Case A. Standard lifecycle
• Transfers from generation
2 fund consumption by
children
• Remaining surplus is
saved (asset-based
outflow)
• Inflows to age 3 will
exceed outflows from age
2 because r>n.
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
2
3
Interage Flows:
B: Mixed Old-age Reallocations
Net transfers
Transfers by age
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
2
3
Asset-based flows by age
Net asset-based
inflows
Case B: Mixed reallocations
• Transfers from generation 2
fund consumption by children
• Remaining surplus divided
between transfers to elderly
and lc saving
• Inflows to age 3 will equal
transfers from generation 2 +
asset-based flow.
• Consumption is lower because
of reliance on transfers. Here
shown as lower consumption
for generation 3.
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
2
3
Dynamic Efficiency, not Golden Rule,
High Childrearing Costs
• Aggregate consumption
exceeds labor income
• Economy as a whole has
a lifecycle deficit
• Return to capital exceeds
the biological rate of
interest n.
• Funded pensions yield a
higher rate of return than
paygo pensions.
120
100
80
Yl
C
60
40
20
0
1
2
3
2
3
60
40
20
0
-20
-40
-60
1
Deficit
Surplus
Interage Flows: Bequests
Net transfers
Transfers by age
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
2
3
Asset-based flows by age
Net asset-based
inflows
Case A
• Transfers from generation 2 fund
consumption by children
• Given high level of child
consumption, asset-based flows =
0 for generation 2.
• Thus, S(2) = YA(2). However, if
age group 2 only saves asset
income, assets must be zero.
Hence, S(2)=YA(2)=0.
• Net asset-based flows are large
and positive for age group 3.
• Not lifecycle assets
A(3,t) = S(2,t-1)=0.
• Age group 3 must have inherited
assets from parents.
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
2
3
Interage Flows: Bequests and Multigenerational Support of Children
Net transfers
Transfers by age
60
Inflows
Outflows
40
20
0
-20
-40
1
2
3
Asset-based flows by age
Net asset-based
inflows
Case B
• Transfers from generation 2
and 3 fund consumption by
children
• Generation 2 saves a portion
of its labor income (assetbased flows are negative)
• Assets for generation 3 consist
of lifecycle assets and
bequests.
• A portion of asset income
received by generation 3 is
consumed and a portion is
transferred to grandchildren (or
to parents who transfer to
grandchildren).
75
50
25
0
Inflows
Outflows
-25
-50
1
2
3
Interage Flows:
Inter vivos Capital Transfers
S(2) = YA(2) > 0
• Net asset-based flows and
transfers are identical to Case
A, but more detailed
information would reveal the
differences.
Net transfers
Transfers by age
60
40
20
0
-20
-40
-60
Inflows
Outflows
1
Net asset-based inflows
Case C
• Transfers from generation 2
fund consumption by children
• Generation 2 has capital
transferred by generation 3.
• Asset income from capital
transfer can be used to fund
transfers to children, own
consumption, or saving. Net
effect in this case is that:
2
3
Asset-based flows by age
60
40
20
0
-20
-40
-60
YA
Saving
1
2
3
Inflows
Outflows
Summary
• Assets must be indirectly funding consumption by children.
• Not just lifecycle assets, but existing assets that are transferred from
one generation to the next.
• One plausible mechanism: grandparents receive bequests and rely
on asset-income to fund transfers to their grandchildren.
• A second plausible mechanism: grandparents make capital transfers
to the parents (at the time of marriage, for example). Parents rely
on those transfers to support children.
• In the first case, bequests are the means by which intergenerational
capital transfers are achieved.
• In the second case, inter vivos intergenerational capital transfers are
important.
LCD, Transfers, and Asset-based Flows,
Normalized aggregate values, US 2003
1.00
Inflows: asset
income > saving > 0
0.80
Relative to Yl/35
0.60
0.40
0.20
Asset-based flows
LCD
0.00
-0.20 0
10
20
30
40
50
60
-0.40
-0.60
Inflows realized
in
-0.80
part through
borrowing
-1.00
Source: Lee, Lee and Mason.
2008.
transfers
Important Point
At no age is saving
coming out of labor income.
Always from asset income.
70
80
90+
Net transfer >>
LC surplus.
LCD, Transfers, and Asset-based Flows,
Normalized aggregate values, Japan 2004
Credit not important
for young
1.00
0.80
0.40
0.20
-0.40
-0.60
-0.80
-1.00
Source: Ogawa et al. 2008.
90+
84
78
72
66
60
54
48
42
36
30
24
18
12
-0.20
6
0.00
0
In other respects,
the picture is
similar to the US.
Relative to Yl/35
0.60
1.00
0.50
84
90+
78
72
66
60
54
48
42
36
30
24
18
12
6
0.00
0
Relative to Yl/35
• Mexico and the
Philippines have very
large LCDs for
children
• Net transfers for
adults far greater than
lifecycle surplus
• Asset-based flows are
large positive
LCD, Transfers, and Asset-based Flows,
Normalized aggregate values, Mexico 2004
-0.50
-1.00
LCD, Transfers, and Asset-based Flows,
Aggregate values, Philippines 1999
1.2
1.0
0.8
0.6
LCD
0.4
Asset-based
0.2
84
78
72
66
60
54
Net Transfers
-0.6
-0.8
90
+
-0.4
48
42
36
30
24
18
6
0
12
0.0
-0.2
Normalized on total labor
income/35.
Source: Mejia-Guevara. 2008; Racelis and Salas. 2007.
1.00
0.80
0.40
0.20
90+
84
78
72
66
60
54
48
42
36
30
24
18
-0.20
12
6
0.00
0
Relative to Yl/35
0.60
-0.40
-0.60
-0.80
-1.00
LCD, Transfers, and Asset-based Flows,
Normalized aggregate values, Thailand, 1999
1.00
0.80
0.60
0.40
0.20
90+
84
78
72
66
60
54
48
42
36
30
24
18
12
6
0.00
-0.20
0
Relative to Yl/35
• S Korea and Thailand
have similar LCDs for
children seniors.
• Thailand reallocation
system similar to other
countries.
• Surplus is relative large in
S Korea
• S Korea has asset-based
outflows (saving > asset
income) for young adults
– unusual.
LCD, Transfers, and Asset-based Flows,
Normalized aggregate values, S Korea 2000
-0.40
-0.60
-0.80
-1.00
Source: www.ntaccounts.org; Chawla. 2008
Significance
• Rethink the economic lifecycle, the importance
of flows to children, and implications for
accumulation and intergenerational equity.
• Emphasis on bequests vis-à-vis lifecycle saving
may be misplaced. Inter vivos intergenerational
capital transfers may be much more important
than realized.
• Impact of financial crisis may not be
concentrated on retirees. Effect on children may
be much more important than realized.
Words of Caution
• Estimates are preliminary and subject to
revision.
• Estimates are totals or per capita values.
• Typical behavior (as judged by the median
for example) may be very different.
• Aggregates conceal an enormous amount
of heterogeneity.
References
Bravo, Jorge and Mauricio Holz (2007) "Inter-age transfers in Chile 1997: economic significance". Paper
presented at the Conference on “Asia’s Dependency Transition: Intergenerational Transfers, Economic
Growth, and Public Policy”, Tokyo, Japan, 1-3 November, 2007.
Chawla, Amonthep (2008) "Macroeconomic Aspects of Demographic Changes and Intergenerational
Transfers in Thailand." Ph.D. dissertation submitted to the University of Hawaii at Manoa.
Lee, Ronald, Sang-Hyop Lee, and Andrew Mason (2007) "Charting the Economic Life Cycle," in Population
Aging, Human Capital Accumulation, and Productivity Growth, Alexia Prskawetz, David E. Bloom, and
Wolfgang Lutz, eds., a supplement to Population and Development Review vol. 33. (New York: Population
Council).
Mason, Andrew, Ronald Lee, An-Chi Tung, Mun Sim Lai, and Tim Miller (forthcoming) “Population Aging
and Intergenerational Transfers: Introducing Age into National Income Accounts,” Developments in the
Economics of Aging edited by David Wise (National Bureau of Economic Research: University of Chicago
Press).
Ogawa, Naohiro, Andrew Mason, Amonthep Chawla, and Rikiya Matsukura (2008) "Japan’s
Unprecedented Aging and Changing Intergenerational Transfers". NTA Working Paper
Racelis, Rachel H. and J.M. Ian S. Salas. “Measuring Economic Lifecycle and Flows Across Population
Age Groups: Data and Methods in the Application of the National Transfer Accounts (NTA) in the
Philippines.” Makati City: Philippine Institute for Development Studies, Discussion Paper Series No. 200712, October 2007.
Vaittinen Risto and Reijo Vanne (2008) Intergenerational Transfers and Life-Cycle Consumption in Finland,
Finnish Centre for Pensions Working Papers 2008:6.