N ational T ransfer A ccounts Population Aging, Intergenerational Transfers, and the Economy: Introducing Age into National Accounts Andrew Mason University of Hawaii – Manoa East-West Center

N ational T ransfer A ccounts Motivation ► Three features of the economy  Economic lifecycle  Population age structure  Systems for shifting resources across age ► Saving ► Public transfer programs ► Familial Support systems ► Interaction influences economic performance and generational equity ► Implications for economic and population policy

N ational T ransfer A ccounts Organization I. Fundamental Ideas II. Brief Review of Recent Research III. Current Effort: National Transfer Accounts ► Basic Concepts ► Three Important Issues

N ational T ransfer A ccounts Fundamentals The Economic Lifecycle Consumption Labor Income Note: Based on estimates for Costa Rica, Indonesia, Taiwan, and Thailand.

N ational T ransfer A ccounts A Simple Model ► Consumption-Loan Economy (Samuelson 1958)  Labor income only  All output is immediately consumed  Age reallocation system: Transfers only; no saving ► Per capita age profiles of consumption and production are fixed (preceding slide) ► Population age structure varies  Young: US 1850  Middle-aged: India 2040  Old: Japan 2050

N ational T ransfer A ccounts Aggregate C and YL Very Young Population (US 1850)

N ational T ransfer A ccounts Aggregate C and YL Very Young Population (US 1850)

N ational T ransfer A ccounts Aggregate C and YL Large Working-age Pop (India 2040)

N ational T ransfer A ccounts Aggregate C and YL Old Population (Japan 2080)

N ational T ransfer A ccounts First Demographic Dividend Economic Support Ratio Source: Mason Ratio of effective workers to effective consumers

N ational T ransfer A ccounts Summary of Implications ► Changes in the relative numbers of workers and consumers over the demographic transition leads to a demographic dividend.  Bloom and Williamson  Bloom, Canning, and Sevilla  Lee and Mason ► The effect erodes as populations age.

N ational T ransfer A ccounts Introduce Capital to the Economic Model ► Economy with capital  Workers save during their working years  Rely on asset income and dis-saving during retirement. ► For solving the old-age lifecycle problem, capital and transfers are close substitutes. ► However, capital also has favorable effects on economic growth.

N ational T ransfer A ccounts What determines the lifecycle demand for capital? ► Features of the economic lifecycle  Consumption by the elderly (now & future)  Labor income of the elderly (now & future) ► Relative number of elderly: More elderly implies greater demand for lifecycle capital.

N ational T ransfer A ccounts Demand for Wealth Old versus Young Population Young PopulationOld Population LC demand for wealth is negligible LC demand for wealth is large Yl C C Note: Uses per capita consumption profiles shown above.

N ational T ransfer A ccounts What determines the lifecycle demand for capital (continued)? ► Support system for the elderly  Public transfers  Familial transfers  Lifecycle saving ► Public and familial transfers may crowd out lifecycle saving

N ational T ransfer A ccounts II. Summary of Recent Research ► Population, Saving, and Wealth  Changes in age structure are partially responsible for high saving rates in Asia (LMM various; KM 2007).  Longer life expectancy led to behavioral change that reinforced age structure effects (LMM various; KM 2007).  A decline in familial support for the elderly may have played an important role (LMM 2003).  Longer life expectancy and aging are leading to a permanent increase in wealth (LMM various; KM 2007)

N ational T ransfer A ccounts II. Summary of Recent Research ► Demographic Dividends  Changes in age structure produce two demographic dividends  First dividend ► Concentration of population in working ages leads to more rapid economic growth; ► Effect unwinds as populations age.  Second dividend: changes in age structure and increase in life expectancy lead to ► More investment and more rapid economic growth ► Permanently higher standards of living. Sources: Mason and Lee, various; Mason, various.

N ational T ransfer A ccounts Important Issues to be Explored ► How does the economic lifecycle vary and why? ► What systems do societies use to shift resources from surplus to deficit ages? ► Why do the systems vary across countries and evolve over time? ► What are the implications for economic performance? For generational equity? ► What are the implications for economic policy? For population policy?

N ational T ransfer A ccounts III. National Transfer Accounts ► Objective:  Develop and apply a comprehensive system of accounts that measures economic flows across age groups in a manner consistent with the System of National Accounts. ► Conceptual foundation:  Lee (1994) but also Samuelson (1958), Diamond (1965), and Willis (1988). ► Organization:  Collaboration between EWC/UH and UC-Berkeley. Core funding from NIA. Sub-projects supported by UNFPA, IDRC, MacArthur Foundation and others. ► Website:

N ational T ransfer A ccounts Participating Countries Asia/OceaniaChinaIndiaIndonesiaJapan Korea, S. PhilippinesTaiwanThailandAustraliaEuropeAustriaFinlandFranceHungarySloveniaSweden N America United States Latin America BrazilChile Costa Rica MexicoUruguayAfricaKenyaNigeria

N ational T ransfer A ccounts Source: Ogawa et al Labor Income Consumption

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Governments Families Charitable Organizations

N ational T ransfer A ccounts Accumulation and dis-accumulation of assets Accumulation and dis-accumulation of debt

N ational T ransfer A ccounts The Flow Account Identity ► Inflows  Labor Income  Asset Income  Transfer Inflows ► Outflows  Consumption  Saving  Transfer Outflows

N ational T ransfer A ccounts Flow Account Details ► Consumption: public and private for health, education, housing, and other. ► Public transfers: in-kind (health, education, other) and cash (pensions and other). ► Private transfers: intra-household for health, education, housing, and all other; inter-household for other. ► Asset-based reallocations: Public and private investment; public and private credit/debt. ► Flows to ROW: remittances, foreign investment, foreign aid.

N ational T ransfer A ccounts Approach to Estimation ► National Income Accounts and other aggregate statistics are used as aggregate controls ► Age profiles are estimated using nationally representative surveys, e.g., income and expenditure surveys, labor force surveys, health expenditure surveys, etc. ► Common methodology documented on

N ational T ransfer A ccounts Issue 1: Lifecycle Deficit, Children ► Does the lifecycle deficit per child increase as the number of children declines?  Becker quality-quantity tradeoff  If so, the decline in fertility will have a smaller effect on capital accumulation.  However, if consumption is higher because parents are spending more on education, then human capital will increase as the number of children declines.

N ational T ransfer A ccounts Per Capita Lifecycle Deficit, Japan 2004, Survival Weighted Note. US life table used for all countries.

N ational T ransfer A ccounts Tradeoff: Spending per Child and Number of Children, 13 Countries

N ational T ransfer A ccounts Tradeoff: Spending per Child and Number of Children, 13 Countries Jp US Ch Tw SK Th Sw Fr Indo Ur CR In Ph

N ational T ransfer A ccounts Issue 2: Lifecycle Deficit, Elderly ► Does the lifecycle deficit per elderly decline as the number of elderly rises?  Preston and others argue yes – political power.  If so, the rise in the old-age population may lead to a greater fiscal burden.

N ational T ransfer A ccounts Tradeoff: Spending per Elderly and Number of Elderly, 13 Countries

N ational T ransfer A ccounts Tradeoff: Spending per Elderly and Number of Elderly, 13 Countries Ur Jp US Fr Sw CR Tw Th Ch SK PhIn Indo

N ational T ransfer A ccounts Issue 3. Support Systems for the Elderly. ► How do they differ across countries? ► Do Asian countries rely more on familial transfers and Western and Latin American countries more on public transfers? ► Does the expansion of public systems crowd saving as hypothesized by Feldstein? ► Or familial transfers?

N ational T ransfer A ccounts Old-Age Reallocation Systems Saving Public Transfers Familial Transfers Traditional society? Capital-based transformation Social welfare transformation

N ational T ransfer A ccounts Old-Age Reallocation Systems Saving Public Transfers Familial Transfers Public transfers and familial transfers are substitutes (Barro).

N ational T ransfer A ccounts Old-Age Reallocation Systems Saving Public Transfers Familial Transfers Public transfers to the elderly crowd out saving (Feldstein).

N ational T ransfer A ccounts Reallocations as a share of lifecycle deficit of the elderly.

N ational T ransfer A ccounts Net public transfers downward Reallocations as a share of lifecycle deficit of the elderly.

N ational T ransfer A ccounts Net public transfers downward Net family transfers downward Reallocations as a share of lifecycle deficit of the elderly.

N ational T ransfer A ccounts Reallocations as a share of lifecycle deficit of the elderly.

N ational T ransfer A ccounts Reallocations as a share of lifecycle deficit of the elderly. Combined net transfer downward

N ational T ransfer A ccounts Familial transfers equally important in Thailand, Korea, and Taiwan (36-40%). Net familial transfers near zero in US, CR, and J. Large public transfers in CR and J. More reliance on assets in CR & US. Net public transfers to elderly are zero in Thailand; about 25% in Taiwan and Korea.

N ational T ransfer A ccounts Reliance on assets in old-age

N ational T ransfer A ccounts 65-year-olds 67% assets, 2% public, 32% private 85-year-olds 23% assets, 39% public, 38% private

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From ages 65 to 80, familial share varies little. Public rising and asset-based declining. After 80 familial share is rising and asset-based declining.

N ational T ransfer A ccounts Asset-based reallocations and public transfers have increased over time; familial transfers have declined precipitously. NHI began in 1995; net public transfers increased.

N ational T ransfer A ccounts Summary of Support Systems ► Estimates are preliminary ► Old-age support systems  Show wide variation  Vary with the age of the elderly  Are changing rapidly ► Familial support system for the elderly  Small in high-income countries (West and Japan)  Upward in rest of Asia, but declining over time  Downward in Latin America

N ational T ransfer A ccounts Warnings! ► NIPA and NTA are incomplete  Time  Environment ► Aggregate data vary in quality and coverage ► Imputing values to individuals based on values for households is difficult

N ational T ransfer A ccounts Final Remarks ► Economic resources shifted across age are enormous. ► Important in many respects  Accumulation of human and physical capital  Generational equity  Economic growth  Externalities to childbearing ► Measuring and studying these flows is difficult but essential.

N ational T ransfer A ccounts Support for this project has been provided by: National Institute on Aging: R37-AG and R01-AG National Institute on Aging: R37-AG and R01-AG NUPRI Academic Frontier Project, Government of Japan NUPRI Academic Frontier Project, Government of Japan John D. and Catherine T. MacArthur Foundation John D. and Catherine T. MacArthur Foundation International Development Research Center (IDRC) International Development Research Center (IDRC) United Nations Population Fund (UNFPA) United Nations Population Fund (UNFPA)

N ational T ransfer A ccounts The National Transfer Accounts project is a collaborative effort of East-West Center, Honolulu and Center for the Economics and Demography of Aging, University of California - Berkeley Lee, Ronald, Co-Director Mason, Andrew, Co-Director Auerbach, Alan Miller, Tim Lee, Sang-Hyop Donehower, Gretchen Ebenstein, Avi Wongkaren, Turro Takayesu, Ann Boe, Carl Comelatto, Pablo Sumida, Comfort Schiff, Eric Stojanovic, Diana Langer, Ellen Chawla, Amonthep Pajaron, Marjorie Cinco

N ational T ransfer A ccounts Japan Key Institutions: Nihon University Population Research Institute and the Statistics Bureau of Japan, Tokyo, Japan. Ogawa, Naohiro, Country Leader Matsukura, Rikiya Maliki Obayashi, Senichi Kondo, Makoto Fukui, Takehiro Ihara, Hajime Suzuki, Kosuke Akasaka, Katsuya Moriki, Yoshie Makabe, Naomi Ogawa, Maki

N ational T ransfer A ccounts Australia Key Institution: Australia National University Jeromey Temple, Country Leader Brazil Turra, Cassio, Country Leader Lanza Queiroz, Bernardo Renteria, Elisenda Perez Chile Key Institution: United Nations Economic Commission for Latin America and the Carribean, Santiago, Chile Bravo, Jorge Mauricio Holz

N ational T ransfer A ccounts Taiwan Key Institution: The Institute of Economics, Academia Sinica, Taipei, Taiwan. Tung, An-Chi, Country Leader Lai, Mun Sim (Nicole) Liu, Paul K.C. Andrew Mason China Key Institution: China Center for Economic Research, Beijing, China. Ling, Li, Country Leader Chen, Quilin Jiang, Yu

N ational T ransfer A ccounts France Wolff, Francois-Charles, Country Leader Bommier, Antoine Thailand Key Institution: Economics Department, Thammasat University. Phananiramai, Mathana, Country Leader Chawla, Amonthep (Beet) Inthornon, Suntichai India Key Institution: Institute for Social and Economic Change, Bangalore Narayana, M.R., Country Leader Ladusingh, L. Mexico Key Institution: Consejo Nacional de Población Partida, Virgilio, Country Leader Mejía-Guevara, Iván

N ational T ransfer A ccounts Indonesia Key Institution: Lembaga Demografi, University of Indonesia, Jakarta, Indonesia. Maliki, Country Leader Wiyono, Nur Hadi Nazara, Suahasil Chotib Philippines Key Institution: Philippine Institute for Development Studies. Racelis, Rachel H., Country Leader Salas, John Michael Ian S. Pajaron, Marjorie Cinco Sweden Key Institution: Institute for Future Studies, Stockholm, Sweden. Lindh, Thomas, Country Leader Johansson, Mats Forsell, Charlotte

N ational T ransfer A ccounts Uruguay Bucheli, Marisa, Country Leader Furtado, Magdalena Rodrigo Ceni Cecilia Rodriguez South Korea An, Chong-Bum, Country Leader Chun, Young-Jun Lim, Byung-In Kim, Cheol-Hee Jeon, Seung-Hoon Gim, Eul-Sik Seok, Sang-Hun Kim, Jae-Ho

N ational T ransfer A ccounts Austria Key Institution: Vienna Institute of Demography Fuernkranz-Prskawetz, Alexia, Country Leader Sambt, Joze Costa Rica Key Institution: CCP, Universidad de Costa Rica Rosero-Bixby, Luis, Country Leader Maria Paola Zuniga Slovenia Sambt, Joze, Country Leader Hungary Key Institution: TARKI Social Research Institute Gal, Robert Medgyesi, Marton Finland Key institutions: The Finnish Center for Pensions And the Finnish Pension Alliance Vanne, Reijo Gröhn, Jukka Vaittinen, Risto

N ational T ransfer A ccounts United States Key Institution: Center for the Economics and Demography of Aging Lee, Ronald, Country Leader Miller, Tim Ebenstein, Avi Boe, Carl Comelatto, Pablo Donehower, Gretchen Schiff, Eric Langer, Ellen

N ational T ransfer A ccounts Kenya Mwabu, Germano Nigeria Soyibo, Adedoyin

N ational T ransfer A ccounts Thank you