May 13, 2005Mason, Lee, Tung, Lai, and Miller1 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, 2005Mason, Lee, Tung, Lai, and Miller2 Support from NIA R37-AG11761, and will be supported by parallel NIA grants to Lee (Berkeley) and Mason (Hawaii).

May 13, 2005Mason, Lee, Tung, Lai, and Miller3 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

May 13, 2005Mason, Lee, Tung, Lai, and Miller4 Lifecycle Deficits—aggregate, not per capita

May 13, 2005Mason, Lee, Tung, Lai, and Miller5 TABLE 1 Resource Reallocation Across Age and Time Mechanism Family Institution Market Public Sector CapitalHouse Car Consumer Durables Inventories Education Factories Inventories Farms Social Infrastructure (Hospitals, Roads, Airports, Govt. Bldgs) TransfersChild Rearing College Costs Gifts Bequests Support of elderly Government DebtPublic 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

May 13, 2005Mason, Lee, Tung, Lai, and Miller6 Theoretical roots in Samuelson overlapping generations Gale Willis Lee

May 13, 2005Mason, Lee, Tung, Lai, and Miller7 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

May 13, 2005Mason, Lee, Tung, Lai, and Miller8 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

May 13, 2005Mason, Lee, Tung, Lai, and Miller9 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.

May 13, 2005Mason, Lee, Tung, Lai, and Miller10 Issues Why do support systems vary over time and space? What are the macroeconomic consequences of population aging? How do the effects of aging vary with the support systems in place? What are the implications of public reform? Changes in familial support systems?

May 13, 2005Mason, Lee, Tung, Lai, and Miller11 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.

May 13, 2005Mason, Lee, Tung, Lai, and Miller12 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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May 13, 2005Mason, Lee, Tung, Lai, and Miller14 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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May 13, 2005Mason, Lee, Tung, Lai, and Miller16 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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May 13, 2005Mason, Lee, Tung, Lai, and Miller18 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. Implication

May 13, 2005Mason, Lee, Tung, Lai, and Miller19 NTA Accounting Identity (1) (2) A = K + M S = I K + I M

May 13, 2005Mason, Lee, Tung, Lai, and Miller20 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.

May 13, 2005Mason, Lee, Tung, Lai, and Miller21 Inter vivos Pub trans Asset realloc bequests

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May 13, 2005Mason, Lee, Tung, Lai, and Miller26 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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May 13, 2005Mason, Lee, Tung, Lai, and Miller28 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. Observations

May 13, 2005Mason, Lee, Tung, Lai, and Miller29 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

May 13, 2005Mason, Lee, Tung, Lai, and Miller30 Another illustration of what can be done with historical depth and projections

May 13, 2005Mason, Lee, Tung, Lai, and Miller31 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, –Discounted at 3% real –actual or projected survival

May 13, 2005Mason, Lee, Tung, Lai, and Miller32 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

May 13, 2005Mason, Lee, Tung, Lai, and Miller33 USA and France: A Comparison (Stephane Zuber) NPVs for the US NPVs for France

May 13, 2005Mason, Lee, Tung, Lai, and Miller34 USA and France: Accounting for the differences (1) Spending as Percent of GDP: US Spending as Percent of GDP: France

May 13, 2005Mason, Lee, Tung, Lai, and Miller35 The End