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
May 13, 2005
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• Support from NIA R37-AG11761, and will
be supported by parallel NIA grants to Lee
(Berkeley) and Mason (Hawaii).
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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
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Lifecycle Deficits—aggregate, not per capita
Figure 1(a). Consumption and Labor Income, Aggregate Values,
Taiwan, 1998,
250
Labor Income
NT$ Billions .
200
Reallocations
150
Consumption
100
50
0
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
Age
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90+
TABLE 1 Resource Reallocation Across Age and Time
Mechanism
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
Support of elderly
Government Debt
Public Education
Medicaid, Medicare
Social Security
Food Stamps
AFDC
Borrow/Lend
(Intertemporal
Exchange)
Familial Loans
"Transfers" with a
quid pro quo
Credit Markets
(mortgages, credit
cards, bond issues)
Government Loans
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Theoretical roots in
•
•
•
•
Samuelson overlapping generations
Gale
Willis
Lee
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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
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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
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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.
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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.
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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.
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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
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Figure 2. Lifecycle of Production (labor earnings) and Cons,
Per Capita, US 2000 and Taiwan 1998
Relative to Average
Production Age 20 to 40 .
1.6
1.4
Production, US
1.2
1.0
Consumption,US
0.8
0.6
Consumption,
Taiwan
0.4
Production, Taiwan
0.2
0.0
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85 90+
Age
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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
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Figure 4. Lifecycle Deficits, Taiwan 1998 and US 2000,
per capita
1.0
US
0.5
Taiwan
-0.5
-1.0
Age
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.
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90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0.0
0
Lifecycle deficit .
1.5
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.
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NTA Accounting Identity
(1)
y  r(K  M )      C  I K  I M     .
(2)
C  yl

g
l
Lifecycle deficit

rA  S
Asset reallocations

f

g
  g   g

Net public transfers

f
 f   f
Net private transfers
Net transfers
A=K+M
Age reallocations
S = IK + IM
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• 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.
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Figure 5a. Components of Aggregate Age Reallocations,
Taiwan, 1998
Reallocations ($NT billions)
Bequests
Inter Vivos Transfers
Public Transfers
Asset Reallocation
150
Total Inflows
100
Pub trans
50
Asset realloc
Inter vivos
0
bequests
-50
-100
Total Outflows
-150
0
10
20
30
40
50
60
70
80
90+
Age
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Figure 5b. Components of Individual Age Reallocations, Taiwan,
1998
Reallocations ($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
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Figure 6a. Components of Aggregate Age Reallocations,
US, 2000
Reallocations ($US billions) .
Bequests
Inter Vivos Transfers
Public Transfers
Asset Reallocation
150
Total Inflows
100
50
0
-50
-100
Total Outflows
-150
0
10
20
30
40
50
60
70
80
90+
Age
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Figure 6b. Components of Individual Age Reallocations,
US, 2000
Bequests
Inter Vivos Transfers
Public Transfers
Asset Reallocation
Reallocations ($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
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Per Capita Asset Reallocations,
US 2000 and Taiwan 1998
Note: Values normalized on simple average of
per capita consumption for 20-40-year-olds.
1.2
1
US
0.8
0.6
Taiwan
0.4
0.2
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84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
-0.2
24
0
20
Asset Reallocations/C(20-40) .
1.4
25
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
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Figure 8. Finance of Consumption, Old Dependents (Age 65+)
Percentage of Consumption
.
140
120
13.1
Work
61.8
Asset Reallocations
42.5
Inter Vivos Transfers
33.2
15.1
100
80
60
40
20
0
4.4
35.3
Public Transfers
23.3
Bequests
-14.6
-14.1
-20
-40
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USA (2000)
Taiwan (1998)
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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.
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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
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Another illustration of what can be
done with historical depth and
projections
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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
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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
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USA and France: A Comparison (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
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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
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Year of Birth
33
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
USA and France: Accounting for the differences (1)
35
30
25
20
15
Education
10
10
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
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Year
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The End
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