N ational T ransfer A ccounts 1 National Transfer Accounts: Private Transfers Marjorie Pajaron University of Hawaii at Manoa & East-West Center

N ational T ransfer A ccounts 2 The Flow Account Identity

N ational T ransfer A ccounts 3 A Classification of NTA Reallocations. Asset-based Age Reallocations Transfers Capital and Other Non-Financial Assets Credit Public Public infrastructure Public land and sub- soil minerals Public debt Student loans Money Public education Public health care Unfunded pension plans PrivateHousing Consumer durables Factories, Farms Private land and sub-soil minerals Inventories Consumer credit Familial support of children and parents Bequests Charitable contributions Source: Mason, Lee et al. (forthcoming); adapted from Lee (1994).

N ational T ransfer A ccounts 4 NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal Age Total Reallocations8321,7047-1, Asset-based reallocations Income on Assets Income on Assets2, , Less: Saving Less: Saving1, , Transfers-291, , Public Public Private Private-311, , Note. Some columns do not total because of rounding. Net transfers consist of public transfers (cash transfers + in-kind transfers less taxes) and private transfers (mostly familial transfers). Positive values imply that inflows exceed outflows.

N ational T ransfer A ccounts 5 Outline I. Private Transfers II. Inter-household Transfers III. Intra-household Transfers IV. Summary

N ational T ransfer A ccounts 6 I. Private Transfers

N ational T ransfer A ccounts 7 I. Private Transfers ► Members of one age group provide economic resources to members of another age group, which is mediated by the households and non- profit institutions serving household sector (NPISH) ► Motives for private transfers are not determined ► “Flows that involve no explicit quid pro quo.” ► “Private transfers must balance, i.e., inflows = outflows in total.”

N ational T ransfer A ccounts 8 I. Private Transfers ► Private transfer function: individuals give and receive transfers  Inter-household transfers  Intra-household transfers  Capital transfers, e.g., bequest, dowries, etc.

N ational T ransfer A ccounts 9 I. Private Transfers

N ational T ransfer A ccounts 10 II. Inter-household Transfers

N ational T ransfer A ccounts 11 II. Inter-household Transfers ► Transfer of resources to and from other households, NPISH and ROW ► Held by the household head ► Steps for constructing age profile: 1) Use household survey data and make sure there is only one household head; 2) For inflows, look for variable that measures the transfers from other household, individuals, and NPISH * (e.g. remittances received from other households, charities from church, etc.)

N ational T ransfer A ccounts 12 II. Inter-household Transfers ► Steps for constructing age profile: 3. For outflows, look for variable that measures the transfers to other household, individuals, and NPISH * (e.g. donations to churches, charities, etc. ) 4. Tabulate these variables by age of head making sure that you use weights 5. Smooth the age profile 6. Adjust the age profiles to match the macro control *

N ational T ransfer A ccounts 13 II. Inter-household Transfers ► Inflows = Outflows if there are no inflows from or outflows to other countries. ► Private Transfer macro control is attributed to net inter-household transfers since intra- household transfer must net to zero. ► Remittances are considered as inter- household transfers (true for Mexico and partially for the Philippines).

N ational T ransfer A ccounts 14 II. Inter-household Transfers 3 Methods in Adjusting Inter-HH Inflows and Outflows if total inflows are not equal to total outflows 1. One multiplicative adjustment factor for inflows & outflows 2. One multiplicative adjustment factor for inflows & one for outflows 3. Adjusting either inflows or outflows, but not both

N ational T ransfer A ccounts 15 II. Inter-household Transfers

N ational T ransfer A ccounts 16 II. Inter-household Transfers

N ational T ransfer A ccounts 17 II. Inter-household Transfers

N ational T ransfer A ccounts 18 III. Intra-household Transfers

N ational T ransfer A ccounts 19 III. Intra-household Transfers ► Indirectly measured by comparing estimates of the consumption of each individual with the income of each individual. ► Transfers for current consumption – when members incur current deficits (disposable Y current C). ► Inflows and outflows depend on surpluses and deficits of each member not on individual characteristics such as age.

N ational T ransfer A ccounts 20 III. Intra-household Transfers ► Disposable income (YD) YD = Labor Income + Public Cash Transfer Inflows – Taxes Paid (Including Indirect Tax on Consumption) + Net inter-household transfers + Public Asset Income – Public Saving (in green font, to be verified)

N ational T ransfer A ccounts 21 III. Intra-household Transfers ► Methodology in estimating the age profile of intra-household transfers  Preparation of Data  Transfers for Current Consumption  Transfers of Remaining Surplus to Head  Transfers for Durable Consumption ► Graphical Illustrations ► Example of intra-household transfers age profiles

N ational T ransfer A ccounts 22 III.1 Preparation of Data 1. Using the household survey, the following unsmoothed variables adjusted to control totals should be available (assuming a single survey has all the necessary variables): (a) labor income (b) current consumption sectors – education, health, other (c) durable consumption sectors – housing, other (d) public cash transfers (d) public cash transfers (e) public asset income (to be verified) (e) public asset income (to be verified) (f) public saving (to be verified) (f) public saving (to be verified) (g) taxes paid (including indirect tax on consumption)* (h) inter-household transfers

N ational T ransfer A ccounts 23 III.1 Preparation of Data 1. Unsmoothed variables adjusted to control totals (single survey used) 2. What to do if variables come from two (or more) survey problem (?) a) Choose one survey that has household head and age of all members b) Assign control total-adjusted profile values (from other surveys) to each individual based on age c) Apply intra-household transfer methodology using the assigned profile instead of survey responses. 3. Only one household head per household 4. Consumption values must be non-negative

N ational T ransfer A ccounts 24 III.2 Transfers for Current Consumption 1. Compute for surplus/deficit for each member i in household j and total surplus/deficit for household j (*) (*) Surplus (i,j) if (Disposable Y (i,j) - Total Current C(i,j)) > 0 Deficit (i,j) if (Disposable Y(i,j) - Total Current C(i,j)) < 0 2. Compute for total surplus/deficit for household j Shortfall exists for household (j) if the total deficit in household (j) > total surplus in household (j)

N ational T ransfer A ccounts 25 III.2 Transfers for Current Consumption 3.Calculate the tax rate  Tax rate varies across households but is independent of the age of the individual within the household.  Flat-rate tax is imposed on each member’s surplus income and this taxed surplus is transferred to support current consumption of other members. (*) (*) Tax (j) = min (1, Deficit (j) / Surplus (j) ) Deficit (j) = total deficits of all household members in household j Surplus (j) = total surpluses of all household members in household j

N ational T ransfer A ccounts 26 III.2 Transfers for Current Consumption 4. Compute for intra-household outflows for current consumption  Non-heads transfer resources to other members equal to their taxed surplus  Heads transfer resources to household members equal to their taxed surplus and any shortfall that he/she finances through asset income or dis-saving, excluding his/her own deficit HeadsNon-heads Outflows = Tax(j) * Surplus of head + Shortfall (j) - Deficit of head Outflows = Tax(j) * Surplus of non-head

N ational T ransfer A ccounts 27 III.2 Transfers for Current Consumption 5. Compute for intra-household inflows and outflows for current consumption by sector.  Transfers received by non-head in each current consumption sector is equal to the proportion of that sector to his total current consumption.  Household head has the same calculation except that he/she has to finance his/her own deficit through asset income or dis-saving, which is not recorded as transfer (when shortfall exists for the household). (*) (*) Heads * true for all sectors Non-heads Inflows Education = (Education (i)/Total Current Consumption (i)) * max [0, Deficit of head – Shortfall of household] Inflows Education = (Education (i)/Total Current Consumption (i)) * Deficit of non-heads

N ational T ransfer A ccounts 28 III.2 Transfers for Current Consumption ► Current transfer outflows from individual (i) in each current consumption sector are proportional to the total household inflows to each sector. Heads * true for all sectors Non-heads Outflows Education = (Education (j)/Total Current Consumption Inflows (j)) * Total Outflows (i)

N ational T ransfer A ccounts 29 III.2 Transfers for Current Consumption ► To verify if the calculations are correct: total inflows = total outflows (for each sector, by household, and in aggregate) *

N ational T ransfer A ccounts 30 II. Intra-household Transfers

N ational T ransfer A ccounts 31 III.2 Transfers for Current Consumption

N ational T ransfer A ccounts 32 III.2 Transfers for Current Consumption

N ational T ransfer A ccounts 33 III.2 Transfers for Current Consumption

N ational T ransfer A ccounts 34 III.3 Transfers of Remaining Surplus to Head 1. Any surplus held by non-heads that is not used for current consumption transfers is transferred to the head to be saved. (Outflows for non-heads, TFWSO) 2. The head receives all the excess surplus. (Inflows to heads, TFWSI) * HeadsNon-heads TFWSO = 0 TFWSO = Surplus – Transfers for current consumption TFWSI = Sum of all excess surplus transferred from non-heads TFWSI = 0

N ational T ransfer A ccounts 35 III.3 Transfers of Remaining Surplus to Head

N ational T ransfer A ccounts 36 II.4 Transfers for Durable Consumption ► Transfers for Owner-Occupied Housing  Household head holds all the assets (including services from owner-occupied housing) by assumption. Consumption of housing for non-head member (living in owner-occupied housing) is financed by transfers from head ► Transfers for Other Durable Goods  If consumption of durable goods is calculated as a flow from existing durable goods, non-head members receive transfers from head equal to the value of member’s durable consumption (just like the treatment for owner- occupied housing).

N ational T ransfer A ccounts 37 III.4 Transfers for Durable Consumption 1. Transfers for durable (asset) consumption (housing, and other durable consumption) flow from head to non-heads. 2. Non-heads receive transfers equal to their durable consumption. HeadsNon-heads Outflows = Durable Consumption of non-heads Outflows = 0 Inflows = 0 Inflows = Durable Consumption

N ational T ransfer A ccounts 38 II.4 Transfers for Durable Consumption

N ational T ransfer A ccounts 39 Summary 1. Importance of Private Transfers 2. Inter-household Transfers and how to handle remittances 3. Intra-household Transfers a. Transfers for Current Consumption a. Transfers for Current Consumption b. Transfers for Durable Consumption b. Transfers for Durable Consumption c. Transfers of Remaining Surplus to Head c. Transfers of Remaining Surplus to Head

N ational T ransfer A ccounts 40 Acknowledgement Support for this project has been provided by the following institutions: ► the John D. and Catherine T. MacArthur Foundation; ► the National Institute on Aging: NIA, R37-AG and NIA, R01-AG025247; ► the International Development Research Centre (IDRC); ► the United Nations Population Fund (UNFPA); ► the Academic Frontier Project for Private Universities: matching fund subsidy from MEXT (Ministry of Education, Culture, Sports, Science and Technology), , granted to the Nihon University Population Research Institute.

N ational T ransfer A ccounts 41 The End