March 2005Mason et al.1 Population Aging and Intergenerational Transfers: Introducing Age into National Accounts Andrew Mason, University of Hawaii and East West Center An-Chi Tung, Academia Sinica, Taiwan Mun Sim Lai, University of Hawaii and East West Center Tim Miller, University of California-Berkeley

March 2005Mason et al.2 Lifecycle Deficits

March 2005Mason et al.3 Table 1. A Classification of National Transfer Account Reallocations. Asset Reallocations Transfers Capital Property and Credit Public Public infrastructure Public debt Student loans Money Public education Public health care Unfunded pension plans Private Housing Consumer durables Factories Farms Inventories Consumer credit Insurance Land Familial support of children and parents Bequests Charitable contributions Source: Adapted from Lee 1994.

March 2005Mason et al.4 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

March 2005Mason et al.5 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?

March 2005Mason et al.6 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 in the paper

March 2005Mason et al.7

March 2005Mason et al.8 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

March 2005Mason et al.9

March 2005Mason et al.10 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

March 2005Mason et al.11 Estimated Reallocation Components Asset reallocations –Inflows: net asset income –Outflows: net saving Public transfers –Education, health care, public pensions –Other public allocated using per capita allocation Private transfers –Inter vivos transfers, including inter- and intra- household transfers –Bequests

March 2005Mason et al.12 NTA Accounting Identity (1) (2)

March 2005Mason et al.13

March 2005Mason et al.14

March 2005Mason et al.15

March 2005Mason et al.16 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

March 2005Mason et al.17

March 2005Mason et al.18 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

March 2005Mason et al.19 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

March 2005Mason et al.20 The End