facts, issues and problems about consumption in nta an-chi tung, 2007.11.05 institute of economics,...

Facts, Issues and Problems about Consumption in NTA

An-Chi Tung, 2007.11.05Institute of Economics, Academia Sinica

[email protected]

Seoul, 2007.11 NTA Workshop 2

Outline

• Cross-section: 15 countries– shape: why differs from past studies?

– composition: CG and CF; durables; health and education,…

• Time-series//cohort pattern: Taiwan, 1978-2003

– growth effect

– time effect/institutional change


Life-cycle Hypothesis and Related Studies


Life cycle hypothesis1. (private) consumption smoothing over the life cycle, based o

n utility maximization (Modigliani and Brumberg, 1954,…)

2. empirical results are mixed• macro (Campbell and Mankiw, 1989,… ) • micro – cross section, panel, or cohort (Hall and Mishkin, 1982;

Altonji and Siow, 1987)

3. micro studies• usually based on household heads at age 20 and above;• some find a hump shape (and the retirement consumption puzzle):

with peak at middle age • due to liquidity constraint (Thurow, 1969), family size (Irvine, 19

78), bequest (Barro, 1974),…

5

(from Robb et al, 1992,Canadian Journal of Economics)

examples of Canada:

cross-section

cohort


Consumption in NTA

• ex-post accounting, no utility maximization

• estimated by individual, not by household

• Includes both private and public C

• Includes both durable and nondurable C• …


NTA results:

Mean Consumption normalized by YL of age 30-49


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

USA 2003

Franc

e 200

1

Sweden

2003

Austri

a 200

0

Japa

n 200

4

Slove

nia 20

04

Taiwan

1998

S. Kor

ea 20

00

Chile

1997

Urugu

ay 19

94

Costa

Rica 20

04

Thaila

nd 20

03

Philip

pine

s 199

9

Indo

nesia

1999

Indi

a 199

9

Real GDP pc(in 2000 international dollar, from Penn World Table

6.2)


By real GDP pc

US France Sweden Austria Japan

Slovenia Taiwan S. Korea Chile Uruguay

Costa Rica Thailand Philippines Indonesia India

10

Patterns of mean consumption

• Hump shape– Chile 1997 (Indonesia has an esrly hump)

• Rising at old age– US 2003, Sweden 2003, Japan 2004, Uruguay 1994 (India 1999)

• Double hump– France 2001, Costa Rica 2004, South Korea 2000

• Flat during adulthood– Flat after around age 20: Thailand 2004, India 1999

– Flat after fast drop at around age 20: Slovenia 2004, Taiwan 1998

• Other…


Are these puzzles?


Single Hump

conform to Life-cycle hypothesis?

age: 47

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 10 20 30 40 50 60 70 80 90

Chile 1997


Double hump

“education” peak in Korea and France

CFX shows double hump in Costa Rica

cf. Chayanov cycle: there is a cycle in C with peak at age 25, 55, and perhaps 85, due to change in family size (Mason and Miller, 2000)

C: 27C: 57

F: 53

F: 15 K: 57

K: 18

0.0

0.2

0.4

0.6

0.8

1.0

0 10 20 30 40 50 60 70 80 90

Costa Rica 2004

France 2001

South Korea 2000


Rising at old age

- may also have hump

US: 17J: 17

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0 10 20 30 40 50 60 70 80 90

Uruguay 1994

US 2003

Japan 2004

Sweden 2003


Flat for adults- some have an

“education” peak

Th: 21

T: 25

T: 19

S: 20

S: 14

0.0

0.2

0.4

0.6

0.8

0 10 20 30 40 50 60 70 80 90

Thailand 2004

India 1999

Taiwan 1998

Slovenia 2004


other typea hump, but peak early

22 28

0.0

0.2

0.4

0.6

0.8

0 10 20 30 40 50 60 70 80 90

Indonesia 1999


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0 10 20 30 40 50 60 70 80 90

high

middle

low

Mean Consumptionby income group (simple average)

as Ron Lee has pointed out:

In the low group, investment in human capital is low, except for Thailand

In the high group, elderly medical expenses are high

In the middle and low groups, adult consumption is flat, except for Urugay.


Why differ from past findings

1. income level or other factors matter:• C on elderly is high in rich countries, and is mostly due to

medical expenditures; but Uruguay is high, too.

• C on children is low in low-income countries, except for Thailand

2. NTA methods to allocate to individuals

3. NTA inclusion of public C and durables

4. data quality or other problems…


Composition of Consumption


Components of Consumption

• C = CG + CF

CG = CGE + CGH + CGX

CF = CFE + CFH + CFD + CFR + CFX


Three issues: results and problems

1. Inclusion of CG

2. “Consumption” or “C-expenditures”:

- durables vs nondurables

3. What is in CFX (other private consumption)? - In Japan, pocket money, “miscellaneous”, and remittances have double humps, other C’s do not.

- In many economies, durables (CFD) or housing (CFR) are not separately measured.


Public Consumption

CG = CGE + CGH + CGX age-specific pattern per capita


An observation

• Richer countries have larger public consumption expenditures, on both health and education.




Costa Rica Thailand Philippines Indonesia


Two kinds of public consumption

• Public goods: with non-rivalness and non-excludability, e.g., defense, law,…

→ allocated equally on everyone

• “Merit goods” (or “social goods”,…): goods that could be delivered as private goods, but are delivered by government to avoid under-provision (due to externality or market failure,…), e.g, education, health

→ shows distinct age profile, and estimated separately


A question

• Addibility of “public goods” to private goods?– less problematic with “merit goods”, but

– public consumption is sometimes found to enter into private utility function negatively (Bailey, 1971)

– people derive utility from the “services” of government purchases

• NTA: ex-post accounting– In any case, need to be careful in adding CG to CF


Private Consumption

CF = CFE + CFH + CFD + CFR + CFX no data sometimes


Mean CF (private consumption)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0 10 20 30 40 50 60 70 80 90

Austria, 2000

Chile, 1997

Costa Rica, 2004

France, 2001

India, 1999

Indonesia, 1999

Japan, 2004

Philippines, 1999

South Korea, 2000

Slovenia, 2004

Sweden, 2003

Taiwan, 1998

Thailand, 2004

Uruguay, 1994

US, 2003


Mean private consumption

• Most countries show single or double hump shape in CF, e.g., – Sweden: rising at old age → double hump– Austria: flat → hump,…

• Uruguay: CFX dominates all else (as in many other economies)


Uruguay, 1994

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 10 20 30 40 50 60 70 80 90

CFX

CFH

CFE


CFX (other consumption)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 10 20 30 40 50 60 70 80 90

Austria, 2000

Chile, 1997

Costa Rica, 2004

France, 2001

India, 1999

Indonesia, 1999

Japan, 2004

Philippines, 1999

South Korea, 2000

Slovenia, 2004

Sweden, 2003

Taiwan, 1998

Thailand, 2004

Uruguay, 1994

US, 2003


Durables consumption


CFD (durables)

• In the literature on life-cycle consumption, the “services” of durables are either ignored or assumed to be additive to nondurable good consumption.

• In NTA, C expenditure on durables are counted as current consumption,– may need to refine.


CFD of 4 countries:

• Japan (29, 59) and Philippines (26, 54) show double hump,

• US has a late peak (58), and Sweden somewhat earlier (48).


CFD (durables)

J, 59

J: 29

Ph, 26Ph, 54

S: 48

A: 58

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0 10 20 30 40 50 60 70 80 90

Japan 2004

Philippines 1999

Sweden 2003

US 2003


• CFD (durable) and CFR (housing) are not calculated in all economies

– due to lack of micro data or aggregate control

• Is it a problem if these are combined into CFX?– how to deal with this?


Health and Education




Costa Rica Thailand Philippines Indonesia


Health and Education

• An observation: – Rich countries spend more on both, and mostly by

government

• Some definition questions:– Is day care or private tutorship considered education?

– Is long-term care included as medical expenditure?


Time Trend of Level and Shape


From Gretchen Donehower (Jan, 2007) : Labor Income and Consumption, 1888-2003

Age

Do

llar

s (

US

, 20

00)

1888

0

2000

4000

6000

8000

0 20 40 60 80

Labor Income

Consumption

1917

0

2000

4000

6000

8000

10000

0 20 40 60 80

1935

0

2000

4000

6000

8000

10000

0 20 40 60 80

1960

0

5000

10000

15000

20000

25000

0 20 40 60 80

1981

0

10000

20000

30000

40000

0 20 40 60 80

2003

0

10000

20000

30000

40000

50000

60000

0 20 40 60 80


Taiwan, 1978, 1988, 1998, 2003

Taiwan, 1978

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 10 20 30 40 50 60 70 80 90

YL

C

CF

CG

Taiwan, 1998

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 10 20 30 40 50 60 70 80 90

Taiwan, 1988

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 10 20 30 40 50 60 70 80 90

Taiwan, 2003

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 10 20 30 40 50 60 70 80 90


(normalized by average YL pc, age 30-49)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0 10 20 30 40 50 60 70 80 90+

Taiwan 2003Taiwan 1998Taiwan 1991Taiwan 1986Taiwan 1981

Taiwan, 1981-2003


Increase of education and health over time

Mean consumption (normalized)

0%

10%

20%

30%

40%

50%

60%

70%

80%

0-19 20-64 65+

CGE

CGH

CGX

CFE

CFH

CFR

CFX

0%

10%

20%

30%

40%

50%

60%

70%

80%

0-19 20-64 65+

CGE

CGH

CGX

CFE

CFH

CFR

CFX

0-19 20-64 65+ 0-19 20-64 65+

1978 1998


Cohort performance


Mean Real Consumptiondeflated by GDP deflator

0

20000

40000

60000

80000

100000

120000

140000

0 10 20 30 40 50 60 70 80 90

0

50000

100000

150000

200000

250000

300000

0 10 20 30 40 50 60 70 80 90

C1998

C1983

C1978

C1958 C1938 C1918 C18980

50000

100000

150000

200000

250000

300000

350000

400000

450000

0 10 20 30 40 50 60 70 80 90

C1998 C1988 C1983 C1978 C1968 C1958

C1948 C1938 C1928 C1918 C1908 C1898

CF

CG


Growth in mean LY

Real (deflated by GDP deflator) normalized by average

YL 30-49

C1958, 42

C1948, 48

C1938, 54

0

100000

200000

300000

400000

500000

600000

0 10 20 30 40 50 60 70 80 90

C1998

C1988

C1978

C1968

C1958

C1948

C1938

C1928

C1918

C1908

C1898

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 10 20 30 40 50 60 70 80 90


Taiwan’s real GDP pc (in international $)

20,701

3,755

0

5000

10000

15000

20000

25000

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003


Normalized mean consumption

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

0 10 20 30 40 50 60 70 80 90

C1998 C1988 C1983 C1978 C1968 C1958

C1948 C1938 C1928 C1918 C1908 C1898

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 10 20 30 40 50 60 70 80 90

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0 10 20 30 40 50 60 70 80 90

CF

CG


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

0 10 20 30 40 50 60 70 80 90

C1998 C1988 C1983 C1978 C1968 C1958

C1948 C1938 C1928 C1918 C1908 C1898

(normalized by average YL pc, age 30-49)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0 10 20 30 40 50 60 70 80 90+

Taiwan 2003Taiwan 1998Taiwan 1991Taiwan 1986Taiwan 1981

“normalized”cohort

time series


Concluding remark• Are puzzles explained?• Need conversation with existing literature in

macro, public finance, labor,…

• Not done today– Finance of Consumption– Methodology (Beet can say something on

estimating health expenditure) – many others…

facts, issues and problems about consumption in nta an-chi tung, 2007.11.05 institute of economics,...

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