may 13, 2005mason, lee, tung, lai, and miller1 population aging and intergenerational transfers:...
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May 13, 2005 Mason, Lee, Tung, Lai, and Miller 1
Population Aging and Intergenerational Transfers:
Introducing Age into National Accounts Andrew Mason,
University of Hawaii and East West Center
Ronald LeeUniversity 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, 2005 Mason, Lee, Tung, Lai, and Miller 2
• Support from NIA R37-AG11761, and will be supported by parallel NIA grants to Lee (Berkeley) and Mason (Hawaii).
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 3
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, 2005 Mason, Lee, Tung, Lai, and Miller 4
Figure 1(a). Consumption and Labor Income, Aggregate Values, Taiwan, 1998,
0
50
100
150
200
250
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+
Age
NT$
Bill
ions
.
Labor Income
ConsumptionReallocations
Lifecycle Deficits—aggregate, not per capita
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 5
TABLE 1 Resource Reallocation Across Age and Time
Mechanism
Family
Institution
Market Public Sector
Capital HouseCarConsumer DurablesInventoriesEducation
Factories Inventories Farms
Social Infrastructure(Hospitals, Roads,Airports, Govt. Bldgs)
Transfers Child RearingCollege CostsGiftsBequestsSupport of elderly
Government Debt Public EducationMedicaid, MedicareSocial SecurityFood StampsAFDC
Borrow/Lend(Intertemporal Exchange)
Familial Loans"Transfers" with a quid pro quo
Credit Markets (mortgages, credit cards, bond issues)
Government Loans
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 6
Theoretical roots in
• Samuelson overlapping generations
• Gale
• Willis
• Lee
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 7
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, 2005 Mason, Lee, Tung, Lai, and Miller 8
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, 2005 Mason, Lee, Tung, Lai, and Miller 9
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, 2005 Mason, Lee, Tung, Lai, and Miller 11
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, 2005 Mason, Lee, Tung, Lai, and Miller 12
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.
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 14
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
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 15
Figure 2. Lifecycle of Production (labor earnings) and Cons, Per Capita, US 2000 and Taiwan 1998
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+
Age
Rel
ativ
e to
Ave
rag
e P
rod
uct
ion
Ag
e 20
to
40
.
Production, Taiwan
Production, US
Consumption,US
Consumption, Taiwan
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 16
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
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 17
Figure 4. Lifecycle Deficits, Taiwan 1998 and US 2000, per capita
-1.0
-0.5
0.0
0.5
1.0
1.50 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
Age
Life
cycl
e de
ficit
. US
Taiwan
Note: The lifecycle deficit is the difference between per capita labor income and consumption. Expressed relative to the simple mean of average production for those 20-40.
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 18
• 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, 2005 Mason, Lee, Tung, Lai, and Miller 19
NTA Accounting Identity
Asset reallocationsLifecycle deficit Net public transfers Net private transfers
Net transfers
Age reallocations
lg g f fC y rA S
( ) .lg f K M g fy r K M C I I (1)
(2)
A = K + M
S = IK + IM
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 20
• 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, 2005 Mason, Lee, Tung, Lai, and Miller 21
Figure 5a. Components of Aggregate Age Reallocations, Taiwan, 1998
-150
-100
-50
0
50
100
150
0 10 20 30 40 50 60 70 80 90+
Age
Rea
llo
cati
on
s ($
NT
bil
lio
ns)
Bequests Inter Vivos Transfers Public Transfers Asset Reallocation
Total Inflows
Total Outflows
Inter vivos
Pub trans
Asset realloc
bequests
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 22
Figure 5b. Components of Individual Age Reallocations, Taiwan, 1998
-400
-300-200
-100
0
100200
300
400
500600
700
0 10 20 30 40 50 60 70 80 90+
Age
Rea
llo
cati
on
s ($
NT
th
ou
san
ds)
.
Bequests Inter Vivos Transfers Public Transfers Asset Reallocation
Total Inflows
Total Outflows
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 23
Figure 6a. Components of Aggregate Age Reallocations, US, 2000
-150
-100
-50
0
50
100
150
0 10 20 30 40 50 60 70 80 90+
Age
Rea
llo
cati
on
s ($
US
bil
lio
ns)
.
Bequests Inter Vivos Transfers Public Transfers Asset Reallocation
Total Inflows
Total Outflows
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 24
Figure 6b. Components of Individual Age Reallocations, US, 2000
-40
-30
-20
-10
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70 80 90+
Age
Rea
llo
cati
on
s ($
US
th
ou
san
ds)
.
Bequests Inter Vivos Transfers Public Transfers Asset Reallocation
Total Inflows
Total Outflows
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 25
Per Capita Asset Reallocations, US 2000 and Taiwan 1998
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.420 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
Ass
et R
eall
oca
tio
ns/
C(2
0-40
) .
US
Taiwan
Note: Values normalized on simple average of per capita consumption for 20-40-year-olds.
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 26
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
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 27
Figure 8. Finance of Consumption, Old Dependents (Age 65+)
35.323.3
61.842.5
-14.6 -14.1
4.4 33.2
15.113.1
-40
-20
0
20
40
60
80
100
120
140
USA (2000) Taiwan (1998)Perc
enta
ge o
f Con
sum
ptio
n .
Public Transfers
Inter Vivos Transfers
Work
Bequests
Asset Reallocations
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 28
• 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, 2005 Mason, Lee, Tung, Lai, and Miller 29
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, 2005 Mason, Lee, Tung, Lai, and Miller 30
Another illustration of what can be done with historical depth and
projections
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 31
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, 1850-2200
– Discounted at 3% real
– actual or projected survival
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 32
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, 2005 Mason, Lee, Tung, Lai, and Miller 33
USA and France: A Comparison (Stephane Zuber)
-20
-15
-10
-5
0
5
10
15
Year of Birth
Education
Public Pensions + Health Benefits
Combined
-20
-15
-10
-5
0
5
10
15
Ye ar of B irth
Education
Public Pensions + Health Benefits
Combined
NPVs for the US
NPVs for France
May 13, 2005 Mason, Lee, Tung, Lai, and Miller 34
USA and France: Accounting for the differences (1)
0
5
10
15
20
25
30
35
Year
Education
Social Security
Medicare
Spending as Percent of GDP:US
0
5
10
15
20
25
30
35
Year
Education
Public Pensions
Health Benefits
Spending as Percent of GDP:France