N ational T ransfer A ccounts Asset-based Reallocations Andrew Mason 4 th NTA Workshop UC Berkeley

N ational T ransfer A ccounts Outline of Presentation I. General Concepts II. Comparative Results III. Conceptual and Computational Issues

N ational T ransfer A ccounts General Concepts: NTA Classification of Asset-based Reallocations Capital and Property Credit PublicInfrastructureSchools Public hospitals National debt Private Machinery, equipment, vehicles, structures, land Consumer credit

N ational T ransfer A ccounts General Concepts: Asset-based inflows and outflows. ► Asset-based reallocations consist of the outflows and inflows generated by owning, creating, acquiring, or disposing of a financial or physical asset. ► Outflows are generated by:  Saving and thereby accumulating assets (or reducing debt);  Paying interest on previously acquired debt. ► Inflows are generated by:  Dis-saving, i.e., disposing of an asset (or increasing debt);  Earning asset income, e.g, profits, interest income, dividends, and rent.

N ational T ransfer A ccounts General Concepts: Asset-based flows and bequests. ► Dis-saving occurs when age groups liquidates their assets to finance consumption. ► Dis-saving is also generated by bequests  Transfer outflow and dis-saving by the decedent’s age group  Transfer inflow and saving by the age groups of the beneficiaries

N ational T ransfer A ccounts General Concepts: Private and Public Bequests ► Both public and private assets are bequeathed. ► The age profile of the outflow depends on the age profile of asset ownership:  Private - assets are assigned to the household head.  Public ► Beneficiaries ► Taxpayers ► Per Capita

N ational T ransfer A ccounts Asset Income: Private Capital and Land Total Domestic by age ROW Capital income Rent, net 0 Rent inflows X Rent outflows -X

N ational T ransfer A ccounts Asset Income: Private Credit Total Domestic by age ROW Interest, net 0 Interest income X Interest expense -X

N ational T ransfer A ccounts Asset Income: Public Capital and Land ► Public capital: no capital income. ► Public land (and other non-reproducible assets): has not been addressed.

N ational T ransfer A ccounts Asset Income: Public Credit Total Domestic by age ROW Interest, net 0 Interest income/Investors X Interest expense /Taxpayers -X Note that if the government is a net creditor then investors will experience an outflow in the form of interest expense and taxpayers an inflow in the form of interest income.

N ational T ransfer A ccounts An Important Simplifying Assumption ► Asset portfolio (distribution of capital, land, private credit, and public credit) is independent of age. ► Implies that the relative age profiles for capital income, rental income, private interest income, and public credit income are identical. ► Implies that choice of debt versus equity financing has no age reallocation effect. Thus, limit private credit to consumer credit, college loans, etc.

N ational T ransfer A ccounts

Public Saving ► Age profile depends on who owns the public capital  “Who benefits” rule ► Students own the schools ► Students invest in schools (with money transferred from taxpayers) ► Upon graduation students bequeath schools to new and perhaps continuing students  “Who pays” rule ► Taxpayers own the schools ► As relative tax burden declines, public assets (and debt) are transferred to a new generation of taxpayers.

N ational T ransfer A ccounts Line between Public and Private Saving ► In NIPA private saving includes the accumulation of public credit by private entities. ► In NTA, the public credit system includes changes in public debt owned by taxpayers matched with changes in public credit owned by investors. ► Implications for the aggregate controls.

N ational T ransfer A ccounts Japan(0)=3.8 Note: Some series include bequests of public assets and debt: Japan, Indonesia, others?

N ational T ransfer A ccounts Japan(0)=-3.8

N ational T ransfer A ccounts III. Conceptual and Computational Issues ► Who owns public assets?  Beneficiaries  Population  Taxpayers ► Definition of the household head ► Calculation of saving  S=Y-C  S=Deposits to saving accounts + purchase of assets + change in cash holdings – net increase in debt, etc.

N ational T ransfer A ccounts