1. An Overview of National Transfer Accounts Andrew Mason January 2005

2. Objective Reach a consensus about the National Transfer Account (NTA) framework –Concepts –Language –Not implementation

4. Table 1. A Classification of NTA Reallocations. Capital Reallocations Property and Credit ReallocationsTransfers Public Private Source: Adapted from Lee 1994.

5. Classification of Reallocations Governing institution –Public –Private Economic form –Investment –Exchange –Transfers

6. Governing Institution Public: reallocations that are social mandates embodied in law and regulation and implemented by local, regional, and national governments. Private: reallocations that are governed by voluntary contracts, social conventions, etc. Mediated by households, families, firms, and non-profit institutions serving households.

7. Economic Form: Investment Increase in total future consumption by reducing current consumption; Leads to a change in total reproducible material wealth; Reallocations from young to old only: capital is accumulated when young and disposed of when old.

8. Economic Form: Exchange Trade of economic resource in one period in return for compensation in one or more future periods; No net increase in aggregate wealth: accumulation by one age group balanced by decline in wealth of another age group

9. Economic Form: Exchange Consumer Credit –One group reduces current consumption and another group increases current consumption –Reallocations in either direction are possible (required) Exchange of land and other non-reproducible assets –Buy land from old person when young; sell to young person when old. –Reallocations of consumption from young to old only.

10. Economic Form: Transfers Reallocations which involve no quid pro quo; Transfers can flow in either direction –From older (parents and taxpayers) to younger (children); –From younger (taxpayers and adult children) to older (elderly/parents).

11. Table 1. A Classification of NTA Reallocations. Capital Reallocations Property and Credit ReallocationsTransfers Public Public infrastructure State owned enterprise Public debt Student loan programs Public education Public health care Unfunded pension plans Private Housing Consumer durables Factories Farms Inventories Consumer credit Insurance Land transactions Familial support of children and parents Bequests Charitable contributions Source: Adapted from Lee 1994.

12. NTA Institutions II All transactions are to and from individuals (residents); All wealth is held by individuals; Social and economic institutions are intermediaries only.

13. Households vs. Individuals Consumption, labor income, public transfers, and intra-household private transfers are allocated to individuals; Inter-household private transfers are between household heads; Assets are held by the household head; saving is by household heads; capital transfers are between household heads.

14. NTA Consists of Two Accounts Lifecycle Account – measures all inter-age flows; Wealth Account – measures the value of the wealth associated with each flow.

15. Lifecycle Account: NTA Accounting Identity Lifecycle Deficit = Lifecycle Reallocations = Capital Reallocations + Land and Credit Reallocations + Net Transfers, Public and Private

16. Table 1. Lifecycle Account, broad age groups. Total0-1415-2930-4445-5960+ Lifecycle Deficit0.2218.49-1.52-45.29-33.7962.32 Consumption228.4118.5230.6240.8644.9393.48 Less: Labor Income228.190.0232.1486.1678.7231.16 Lifecycle Reallocations0.2218.49-1.52-45.29-33.7962.32 Capital Reallocations 0.220.00-3.85-15.21-9.9029.18 Property & Credit Reallocations 0.00 -0.51-2.10-2.334.94 Net Transfers 0.0018.492.85-27.98-21.5628.20 Public 0.001.85-5.50-18.02-16.4738.14 Familial 0.0016.658.35-9.96-5.10-9.94 Upper panel measures the difference between production and consumption over the lifecycle. All values are totals for the age group, although means can be readily calculated.

17. Table 1. Lifecycle Account, broad age groups. Total0-1415-2930-4445-5960+ Lifecycle Deficit0.2218.49-1.52-45.29-33.7962.32 Consumption228.4118.5230.6240.8644.9393.48 Less: Labor Income228.190.0232.1486.1678.7231.16 Lifecycle Reallocations0.2218.49-1.52-45.29-33.7962.32 Capital Reallocations 0.220.00-3.85-15.21-9.9029.18 Property & Credit Reallocations 0.00 -0.51-2.10-2.334.94 Net Transfers 0.0018.492.85-27.98-21.5628.20 Public 0.001.85-5.50-18.02-16.4738.14 Familial 0.0016.658.35-9.96-5.10-9.94 Lower panel measures the reallocation systems employed to satisfy the lifecycle deficits and surpluses at each age.

18. Table 1. Lifecycle Account, broad age groups. Total0-1415-2930-4445-5960+ Lifecycle Deficit0.2218.49-1.52-45.29-33.7962.32 Consumption228.4118.5230.6240.8644.9393.48 Less: Labor Income228.190.0232.1486.1678.7231.16 Lifecycle Reallocations0.2218.49-1.52-45.29-33.7962.32 Capital Reallocations 0.220.00-3.85-15.21-9.9029.18 Property & Credit Reallocations 0.00 -0.51-2.10-2.334.94 Net Transfers 0.0018.492.85-27.98-21.5628.20 Public 0.001.85-5.50-18.02-16.4738.14 Familial 0.0016.658.35-9.96-5.10-9.94 Assets reallocations are equal to capital income (profits, interest income and other returns to accumulated capital) less investment. Age groups with negative values are investing in excess of their capital income.

19. Table 1. Lifecycle Account, broad age groups. Total0-1415-2930-4445-5960+ Lifecycle Deficit0.2218.49-1.52-45.29-33.7962.32 Consumption228.4118.5230.6240.8644.9393.48 Less: Labor Income228.190.0232.1486.1678.7231.16 Lifecycle Reallocations0.2218.49-1.52-45.29-33.7962.32 Capital Reallocations 0.220.00-3.85-15.21-9.9029.18 Property & Credit Reallocations 0.00 -0.51-2.10-2.334.94 Net Transfers 0.0018.492.85-27.98-21.5628.20 Public 0.001.85-5.50-18.02-16.4738.14 Familial 0.0016.658.35-9.96-5.10-9.94 Property & credit reallocations are equal to property income (rent plus interest) less the net increase in property and credit balances. Age groups with negative values are accumulating assets in excess of their property income.

20. Table 1. Lifecycle Account, broad age groups. Total0-1415-2930-4445-5960+ Lifecycle Deficit0.2218.49-1.52-45.29-33.7962.32 Consumption228.4118.5230.6240.8644.9393.48 Less: Labor Income228.190.0232.1486.1678.7231.16 Lifecycle Reallocations0.2218.49-1.52-45.29-33.7962.32 Capital Reallocations 0.220.00-3.85-15.21-9.9029.18 Property & Credit Reallocations 0.00 -0.51-2.10-2.334.94 Net Transfers 0.0018.492.85-27.98-21.5628.20 Public 0.001.85-5.50-18.02-16.4738.14 Familial 0.0016.658.35-9.96-5.10-9.94 Net transfers consist of public transfers and private or familial transfers. Positive values imply that inflows exceed outflows.

21. Model NTA Account based on Life expectancy at birth: 87.6 Population growth rate: -1% pa Population 65+: 36% Public pension program with a 40% replacement rate; modest familial support Consumption by children: –10% public –90% familial Exogenous labor productivity growth: 1.5% Interest rate: 0.5%

22. Lifecycle Wealth Lifecycle wealth is the present value of the net flows or reallocations from the lifecycle account Wealth (W(a,t) = Capital (K(a,t)) + Land and Credit (M(a,t)) + Transfer Wealth (T(a,t))

23. Lifecycle Wealth Markets for capital, land, and credit establish current prices and values Transfer wealth is not traded; thus

24. Lifecycle Flows and Wealth K and M change over time due to investment and changes in capital prices. For capital:

25. Transfer Wealth and Transfers In the absence of revaluations, transfer wealth evolves as:

26. Transfer Wealth and Transfers Transfer wealth will also be subject to revaluations due to: –Changes in interest rates –Changes in public and private transfer policy A Wealth Revaluation Account records revaluations in transfer wealth and changes in asset prices

27. The End