1. Generational Wealth Accounts Workshop
Transfers
Gretchen Donehower
Generational Wealth Accounts Workshop
University of Georgia
Athens, Georgia
Thursday, February 1, 2018

2. Outline 1 Public transfers introduction 2 Public transfers how to
3 Exercise: public sector inventory
4 Private transfers introduction
5 Private transfers how to
6 Exercise: private transfer spreadsheet examples

3. Public Transfers
Public transfer system consists of a set of mutually exclusive and exhaustive programs.
Programs vary across countries
Summed up by sector and in-kind versus cash (health, education, etc.)
Lower levels are narrowly defined programs
Source of funding:
Some programs have obligated or committed sources (e.g., 90% of Taiwan’s Health Tax on Tobacco goes into NHI Fund, US FICA taxes pay for Social Security and Medicare), thus have distinctive age pattern in inflow and outflow
Some programs funded from general revenues
Age-related programs are the emphasis in NTA

4. Age Profile of Public Transfer Flows (Japan, 2004)
Public Transfers
Education
National Transfer Accounts

5. Public Transfers A public transfer program is measured in NTA by:
Outflows from taxpayers or social contributors funding the program
Inflows to the beneficiaries of the program
Total inflows and outflows must be equal, for each sector, though not for any age

6. Public Inflows (by major sectors)
In-kind transfer: from Public Consumption
Education
Any voucher-like programs for health care are counted as public consumption of health care.
Other in-kind transfers
Cash transfers
Social security benefits in cash
Social assistance benefits in cash
PAYGO Pension programs
Grants

7. Public Outflows (by major sources)
Taxes
Direct taxes
Indirect taxes, minus subsidies
Other revenues, e.g., fees and fines
Social security contributions
Transfer surplus // deficit
If public outflows > public inflows, i.e., the government spend more than it collects taxes, then if has a deficit
This is a calculated amount, no SNA or GFS counterpart
Grants

8. Public Sector Accounts Balance
Inflows
taxes
public asset income
ROW, net
Outflows
expenditure (final consumption expenditure of government)
public transfer deficit (a calculated term)
public savings
other forms of asset accumulation

9. (i.e., inflow>outflow)
How Is Public Transfer Deficit Financed? (Taiwan, 1998)
ROW, net
1,806
receipts:
1, ,432 = 250,238
disbursements:
84,684+49, ,231
=250,238
public
asset income
248,432
Public
sector
public
savings
84,684
social insur.
fund surplus
49,324
transfer deficit
(i.e., inflow>outflow)
116,231
National Transfer Accounts

10. Three Important Questions
How large is each tax and program (annual expenditure)?
Which age groups benefit (inflows)?
Which age groups bear the cost (outflows)?

11. How to: public transfer INFLOWS
Identify all public expenditures
For in-kind transfer programs, you have already calculated the inflow as part of public consumption (CG)
For cash transfer programs, find an age shape indicator and adjust to the macro control
Macro controls by program may come from public expenditure reports
If totals do not agree with SNA, adjust proportionally

12. How to: public transfer OUTFLOWS
Identify all taxes and social contributions
Find an age shape indicator for each and adjust to the macro control to create tax age profiles
If no information on tax payments by age, use age shape of source being taxed (example: consumption taxes)
Macro controls by type of tax may come from public revenue reports
If totals do not agree with SNA, adjust proportionally
Transform taxes into public transfer outflows based on source of revenue for each program
Some benefits are paid for with “earmarked” taxes (completely or in-part)
Other benefits financed by general revenues

13. Table 13. Tax Incidence for Public Transfer Outflows
Tax Incidence or Source of Outflow
Taxes on Income
Combined asset and labor income
Taxes on Profits and capital gains
Asset income
Taxes on earnings including contributions of employers; Social contributions
Earnings or labor income
Taxes on Payroll and workforce
Earnings
Taxes on Property
Value of assets
Taxes on Goods and Services
Value of consumption of goods and
services subject to tax
Taxes on International Trade and Services
Various: Consumption, labor income,
asset income, Rest of the World.
Other Taxes
Various

14. Short look at US code for public sector…
(Every country will be different)

15. Private Transfers Introduction
Interhousehold transfers
Gifts from family/friends/charity, alimony, child support, remittances
Given and received by household heads only
Intrahousehold transfers
Not part of national accounts
NTA innovation
Model based (assumptions + other NTA age profiles)
Other NTA age profiles give how much each person consumes and how much cash he has to pay for that consumption
Some in household have cash surplus, some have deficit
Assumed equal sharing model by which those with cash surplus make transfers to cover the needs of those with deficits

16. Private Transfer Profiles
Private Transfers (TF)
IntraHH (TFW) +
InterHH
(TFB)
IntraHH Inflow (TFWI)
IntraHH Outflow (TFWO)
Inflow (TFBI)
Outflow (TFBO)
Edu (TFWEI)
Health (TFWHI)
Housing (TFWAI)
Other (TFWXI)
Saving (TFWSI)
Health (TFWHO)
Housing (TFWAO)
Other (TFWXO)
Saving (TFWSO) 16

17. How to: inter-household transfers
Identify transfer flow given and received from household survey
May need to supplement with outside information if there are significant remittance inflows or outflows
May need to supplement for tertiary education if students are not in household of person paying for education
Find the macro controls
Some countries have enough SNA detail to calculate inflow and outflow macro controls
Others just have a net flow macro control for TF
Adjust to macro controls
See manual for details on how to adjust to net flow amount

18. TFB Control Total
So how to adjust inflows and outflows to a net total?
Infinite number of mathematical solutions Example: Inflow = 2; Outflow=-4; Net = -1
Adjust inflow to 3 and outflow unadjusted
Adjust outflow to -2 and inflow unadjusted
Adjust inflow to 1 and outflow to -2
Adjust inflow to 999 and outflow to -1000
What to do? General principle: believe your survey and adjust as little as possible. 18

19. TFBI/O Adjustment Option 1
TF is same sign as TFBIagg+ TFBOagg? No reason to think one profile is better estimated than the other?
One adjustment factor for TFBI and TFBO (this is the basic NTA adjustment factor, applied to TFB): 19

20. TFBI/O Adjustment Option 2
TF is opposite sign from TFBIagg+ TFBOagg? No reason to think one profile is better estimated than the other?
“Split the difference” adjustment factors:
Apply adjustment factors by multiplying (see previous slide)
If adj factor is negative, CAN’T USE THIS METHOD 20

21. TFBI/O Adjustment Option 3
One profile seems reasonable but other needs adjustment?
Adjust only inflow or outflow:
***OR***
Multiply only one profile, leave other as observed 21

22. How to choose among options?
Try several different methods and see which one gives the smallest adjustment compared to your survey.
Check results against external sources
Look for other research on this type of transfer
References suggesting whether your survey might have an under- or over-estimate on one side of the flow compared to the other
If you come up with ENORMOUS adjustment factors, need to find better profile. 22

23. Last Words on TFBI/O Adjustment
If all options for adjustment factors are huge (>3), back to the drawing board for better profile estimates
Look to literature for external consistency checks
Is size of resulting aggregate inflows and outflows reasonable relative to GDP? To avg YL age 30-49? To TFW? 23

24. Intrahousehold Transfers (TFW)
While these exist in real life, very difficult to measure
Not in household surveys
So how do we estimate them in NTA?
We assume a behavioral model and calculate the outcome based on the model and on our other profiles

25. NTA Behavioral Model of TFW
Head makes all transfers of consumption of owned assets (owned housing)
Transfers for current consumption (edu, health, other) from those with surplus cash after paying for own consumption and (cash) taxes, to those with deficit
Outfows proportional to surplus, inflows proportional to deficit (“unitary model”)
Head covers any household cash shortfall with asset-based reallocations or receives any household cash surplus 25

26. How to: intra-household transfers
Start with macro-adjusted, unsmoothed, individual-level amounts for:
Private consumption by sectors (education, health, owned housing, other)
Labor income
Public cash transfer inflows
Net inter-household transfers
Taxes paid
Implement household sharing model (stata code will be available online)
See manual for adjustments if the “ingredients” for intrahousehold transfers come from different sources
No macro adjustments necessary, but small adjustments to maintain inflow/outflow balance after weights are applied and profile is smoothed

27. Intrahousehold Transfers (TFW)
Control-total adjusted microdata??? What???
After computing “ingredients” variables in your survey, save a copy of the microdata
Collapse to age profiles and calculate adjustment factors
Save adjustment factors
Bring back the microdata file with “ingredients” variables, merge adjustment factors
Multiply “ingredients” variables by adjustment factors
Now you are ready to calculate TFW! 27

28. Intrahousehold Transfers (TFW)
Why, oh why, must I do this? For everything to work out correctly when we get to ABR
Example of 0 year olds:
No ABR, no TFB, so their LCD must be covered by TF+TG
LCD and TG are control-total adjusted, so to make sure everything ties out, TFW ingredients must be control-total adjusted
NTA IS LIKE SUDOKU! You can make an early mistake and not realize things are messed up until the last square. 28

29. Short look at US code for intra-household transfers…
(Every country will be different)

30. TFW Checks
Before calculating age-average profile, inflows must balance outflows
Within the household and population
Within each type of consumption
Due to sampling variation and/or survey weights, after calculating age-average profile, this balance will be lost
Smoothing also creates net +/- TFW.
Need adjustment after weighting and smoothing 30

31. TFW Adjustment Adjust only outflows: Should be small!
New idea to restrict adjustment to working ages; avoids residual saving for young kids
Should still be small! 31

32. TFW Multiple Survey Problem
What if you don’t have one survey with all of the TFW ingredients?
You can still use the TFW algorithm, you just need a few more steps first.
See manual section 32

33. Private transfer spreadsheet examples
Using “IntraHHExample.xls”, shows a “toy” example of one household and how the NTA behavioral model of intrahousehold transfers operates.
Look at “InterHHExample1.xls” and “InterHHExample2.xls”
Examples of choosing TFBI/O adjustment