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Population Aging, Intergenerational Transfers, and the Economy. Andrew Mason University of Hawaii – Manoa East-West Center. Motivation. Three features of the economy Economic lifecycle Population age structure Systems for shifting resources across age Saving Public transfer programs - PowerPoint PPT Presentation
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NNational ational TTransfer ransfer AAccountsccounts
Population Aging, Population Aging, Intergenerational Intergenerational Transfers, and the Transfers, and the EconomyEconomy
Andrew MasonAndrew Mason
University of Hawaii – ManoaUniversity of Hawaii – Manoa
East-West CenterEast-West Center
National Transfer Accounts
MotivationMotivation
► Three features of the economy Three features of the economy Economic lifecycleEconomic lifecycle Population age structure Population age structure Systems for shifting resources across ageSystems for shifting resources across age
► SavingSaving► Public transfer programsPublic transfer programs► Familial Support systemsFamilial Support systems
► Interaction influences economic performance Interaction influences economic performance and generational equityand generational equity
► Implications for economic and population Implications for economic and population policypolicy
National Transfer Accounts
OrganizationOrganization
I.I. Fundamental IdeasFundamental Ideas
II.II. Brief Review of Recent ResearchBrief Review of Recent Research
III.III. Current Effort: National Transfer Current Effort: National Transfer AccountsAccounts
► Basic ConceptsBasic Concepts► Three Important IssuesThree Important Issues
National Transfer Accounts
FundamentalsFundamentalsThe Economic LifecycleThe Economic Lifecycle
0
0.2
0.4
0.6
0.8
1
1.2
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90
Rel
ativ
e to
lab
or
inco
me(
30-4
9)
Consumption
Labor Income
Note: Based on estimates for Costa Rica, Indonesia, Taiwan, and Thailand.
National Transfer Accounts
Consumption-Loan EconomyConsumption-Loan Economy(Samuelson 1958)(Samuelson 1958)►Labor income only Labor income only ►All output is immediately consumedAll output is immediately consumed►Age reallocation system: Transfers Age reallocation system: Transfers
only; no savingonly; no saving►Per capita age profiles of consumption Per capita age profiles of consumption
and production are fixedand production are fixed►Population age structure variesPopulation age structure varies
National Transfer Accounts
Aggregate C and YLAggregate C and YLVery Young Population (US Very Young Population (US 1850)1850)
0
200
400
600
800
1000
1200
1400
1600
0-4
10-
14
20-2
4
30-3
4
40-4
4
50-5
4
60-6
4
70-7
4
80-8
4
90-9
410
0+
C
Yl
Deficit for childrenand the elderly exceeds surplus of workers. Consumption must decline.
National Transfer Accounts
Aggregate C and YLAggregate C and YLVery Young Population (US Very Young Population (US 1850)1850)
0
200
400
600
800
1000
1200
1400
1600
0-4
10-
14
20-2
4
30-3
4
40-4
4
50-5
4
60-6
4
70-7
4
80-8
4
90-9
410
0+
C
Yl
C'
Consumption drops by 25 percent.
National Transfer Accounts
Aggregate C and YLAggregate C and YLLarge Working-age Pop (India Large Working-age Pop (India 2040)2040)
0
20000
40000
60000
80000
100000
120000
0-4
10-
14
20-2
4
30-3
4
40-4
4
50-5
4
60-6
4
70-7
4
80-8
4
90-9
410
0+
C
Yl
C'
Reduction of consumption of only 3% is needed.
National Transfer Accounts
Aggregate C and YLAggregate C and YLOld Population (Japan 2080)Old Population (Japan 2080)
0
1000
2000
3000
4000
5000
6000
0-4
10-
14
20-2
4
30-3
4
40-4
4
50-5
4
60-6
4
70-7
4
80-8
4
90-9
410
0+
C
Yl
C'
Old population leads to 26% decline in consumption.
National Transfer Accounts
First Demographic DividendFirst Demographic DividendEconomic Support RatioEconomic Support Ratio
0.7
0.75
0.8
0.85
0.9
0.95
1
1850
1870
1890
1910
1930
1950
1970
1990
2010
2030
2050
2070
2090
US
Japan
India
Source: Mason 2007.
National Transfer Accounts
Summary of ImplicationsSummary of Implications
►Changes in the relative numbers of Changes in the relative numbers of workers and consumers over the workers and consumers over the demographic transition leads to a demographic transition leads to a demographic dividend.demographic dividend. Bloom and WilliamsonBloom and Williamson Bloom, Canning, and SevillaBloom, Canning, and Sevilla Lee and MasonLee and Mason
►The effect erodes as populations age. The effect erodes as populations age.
National Transfer Accounts
Introduce Capital Introduce Capital
►Economy with capitalEconomy with capital Workers save during their working yearsWorkers save during their working years Rely on asset income and dis-saving during Rely on asset income and dis-saving during
retirement.retirement.
►For solving the old-age lifecycle For solving the old-age lifecycle problem, capital and transfers are close problem, capital and transfers are close substitutes.substitutes.
►However, capital also has favorable However, capital also has favorable effects on economic growth.effects on economic growth.
National Transfer Accounts
What determines the lifecycle What determines the lifecycle demand for capital?demand for capital?►Features of the economic lifecycleFeatures of the economic lifecycle
Consumption by the elderly (now & Consumption by the elderly (now & future)future)
Labor income of the elderly (now & future)Labor income of the elderly (now & future)
►Relative number of elderly: More Relative number of elderly: More elderly implies greater demand for elderly implies greater demand for lifecycle capital.lifecycle capital.
National Transfer Accounts
Demand for wealthDemand for wealthOld versus Young PopulationOld versus Young Population
0
200
400
600
800
1000
1200
1400
1600
0
1000
2000
3000
4000
5000
6000
0-4
10-
14
20-2
4
30-3
4
40-4
4
50-5
4
60-6
4
70-7
4
80-8
4
90-9
410
0+
Young Population Old Population
LC demand for wealth is negligible
LC demand for wealth is large
Yl
C
Yl
C
National Transfer Accounts
What determines the lifecycle What determines the lifecycle demand for capital (continued)?demand for capital (continued)?
►Support system for the elderlySupport system for the elderly Importance of the capital systemImportance of the capital system Familial and public transfer systems Familial and public transfer systems
undermine capital accumulationundermine capital accumulation
National Transfer Accounts
II. Summary of Recent II. Summary of Recent ResearchResearch► Population, Saving, and WealthPopulation, Saving, and Wealth
Changes in age structure are only Changes in age structure are only partially partially responsible responsible for high saving rates in Asia (LMM various; KM 2007).for high saving rates in Asia (LMM various; KM 2007).
Longer life expectancy led to a behavioral change that Longer life expectancy led to a behavioral change that reinforced age structure effects (LMM various; KM reinforced age structure effects (LMM various; KM 2007). 2007).
A decline in familial support for the elderly may have A decline in familial support for the elderly may have played an important role (LMM 2003). played an important role (LMM 2003).
Aging will lead to somewhat lower saving (LMM Aging will lead to somewhat lower saving (LMM various) or not (KM 2007). various) or not (KM 2007).
Longer life expectancy and aging are leading to a Longer life expectancy and aging are leading to a permanent increase in wealth (LMM various; KM 2007)permanent increase in wealth (LMM various; KM 2007)
National Transfer Accounts
II. Summary of Recent II. Summary of Recent ResearchResearch► Demographic DividendsDemographic Dividends
Changes in age structure produce two Changes in age structure produce two demographic dividendsdemographic dividends
First dividendFirst dividend► Concentration of population in working ages leads to more Concentration of population in working ages leads to more
rapid economic growth;rapid economic growth;► Effect unwinds as populations age.Effect unwinds as populations age.
Second dividend: changes in age structure and Second dividend: changes in age structure and increase in life expectancy lead toincrease in life expectancy lead to
► More rapid economic growthMore rapid economic growth► Permanently higher economic growth.Permanently higher economic growth.
Sources: Mason and Lee, various; Mason, Sources: Mason and Lee, various; Mason, various. various.
National Transfer Accounts
Important Issues to be Important Issues to be ExploredExplored► How does the economic lifecycle vary and How does the economic lifecycle vary and
why?why?► What systems do societies use to shift What systems do societies use to shift
resources from surplus to deficit ages?resources from surplus to deficit ages?► Why do the systems vary across countries Why do the systems vary across countries
and evolve over time? and evolve over time? ► What are the implications for economic What are the implications for economic
performance? For generational equity?performance? For generational equity?► What are the implications for economic What are the implications for economic
policy? For population policy? policy? For population policy?
National Transfer Accounts
III. National Transfer III. National Transfer AccountsAccounts► Objective: Objective:
Develop and apply a comprehensive system of accounts Develop and apply a comprehensive system of accounts that measures economic flows across age groups in a that measures economic flows across age groups in a manner consistent with the System of National Accounts. manner consistent with the System of National Accounts.
► Conceptual foundation: Conceptual foundation: Lee (1994) but also Samuelson (1958), Diamond (1965), Lee (1994) but also Samuelson (1958), Diamond (1965),
and Willis (1988).and Willis (1988).► Organization: Organization:
Collaboration between EWC/UH and UC-Berkeley. Core Collaboration between EWC/UH and UC-Berkeley. Core funding from NIA. Sub-projects supported by UNFPA and funding from NIA. Sub-projects supported by UNFPA and others.others.
► Website: www.ntaccounts.orgWebsite: www.ntaccounts.org
National Transfer Accounts
Participating CountriesParticipating Countries
ASIAASIAChinaChina
IndiaIndia
IndonesiaIndonesia
JapanJapan
Korea, S.Korea, S.
PhilippinesPhilippines
TaiwanTaiwan
ThailandThailand
EUROPEEUROPEAustriaAustria
FranceFrance
HungaryHungary
SloveniaSlovenia
SwedenSweden
NORTH AMERICANORTH AMERICAUnited StatesUnited States
LATIN LATIN AMERICAAMERICABrazilBrazil
ChileChile
Costa RicaCosta Rica
MexicoMexico
UruguayUruguay
OCEANIAOCEANIAAustraliaAustralia
National Transfer Accounts
Age Group
TransferSystem
Asset System
LaborIncome
Consumption
Transfers
Transfers
Saving &Interest expense
Dis-saving& Interestincome
National Transfer Account FlowsNational Transfer Account Flows
Inflows Outflows
National Transfer Accounts
The Flow Account IdentityThe Flow Account Identity
► InflowsInflows Labor IncomeLabor Income Asset IncomeAsset Income Transfer InflowsTransfer Inflows
► OutflowsOutflows ConsumptionConsumption SavingSaving Transfer OutflowsTransfer Outflows
Inflows Outflows
( ) ( ) ( ) ( ) ( ) ( )l aY a Y a a C a S a a
Lifecycle Deficit Asset-based Reallocations Net Transfers
Age Reallocations
( ) ( ) ( ) ( ) ( ) ( )l aC a Y a Y a S a a a
National Transfer Accounts
Detailed National Transfer Flow Detailed National Transfer Flow AccountAccount► Consumption: public and private for health, Consumption: public and private for health,
education, housing, and other.education, housing, and other.► Public transfers: in-kind (health, education, Public transfers: in-kind (health, education,
other) and cash (pensions and other).other) and cash (pensions and other).► Private transfers: intra-household for Private transfers: intra-household for
health, education, housing, and all other; health, education, housing, and all other; inter-household for other. inter-household for other.
► Asset-based reallocations: Public and Asset-based reallocations: Public and private investment; public and private private investment; public and private credit/debt.credit/debt.
► Domestic flows and flows to ROW.Domestic flows and flows to ROW.
National Transfer Accounts
Approach to EstimationApproach to Estimation
►National Income Accounts and other National Income Accounts and other aggregate statistics are used as aggregate statistics are used as aggregate controlsaggregate controls
►Age profiles are based on nationally Age profiles are based on nationally representative surveys, e.g., income representative surveys, e.g., income and expenditure surveys, labor force and expenditure surveys, labor force surveys, health expenditure surveys, surveys, health expenditure surveys, etc. etc.
►Common methodology documented on Common methodology documented on www.ntaccounts.orgwww.ntaccounts.org
National Transfer Accounts
Issue 1: Lifecycle Deficit, Issue 1: Lifecycle Deficit, ChildrenChildren►Does the lifecycle deficit per child Does the lifecycle deficit per child
increase as the number of children increase as the number of children declines? declines? Becker quality-quantity tradeoffBecker quality-quantity tradeoff If so, the decline in fertility will have a If so, the decline in fertility will have a
smaller effect on capital accumulation. smaller effect on capital accumulation. However, if consumption is higher because However, if consumption is higher because
parents are spending more on education, parents are spending more on education, then human capital will increase as the then human capital will increase as the number of children declines. number of children declines.
National Transfer Accounts
Per Capita Lifecycle Deficit, Per Capita Lifecycle Deficit, Japan 2004, Survival WeightedJapan 2004, Survival Weighted
0
0.2
0.4
0.6
0.8
1
1.2
1.4
0 10 20 30 40 50 60 70 80 90
Age
Rel
ativ
e to
Yl(
30-4
9)
Child LCD15.1 years of prime-adult
labor
Elderly LCD10.5 years of prime-adult
labor
Note. US 1985-89 life table used for all countries.
National Transfer Accounts
Tradeoff: Spending per Child and Tradeoff: Spending per Child and Number of Children, 13 CountriesNumber of Children, 13 Countries
y = -7.7914x + 15.473
R2 = 0.6125
6789
10111213141516
0.2 0.4 0.6 0.8 1 1.2
Child Dependency Ratio: N(0-19)/N(20-59)
LC
D C
hil
dre
n/Y
l(30
-49)
National Transfer Accounts
Tradeoff: Spending per Child and Tradeoff: Spending per Child and Number of Children, 13 CountriesNumber of Children, 13 Countries
6789
10111213141516
0.2 0.4 0.6 0.8 1 1.2
Child Dependency Ratio: N(0-19)/N(20-59)
LC
D C
hil
dre
n/Y
l(30
-49)
Jp
US ChTwSK Th
SwFr
IndoUrCR In
Ph
National Transfer Accounts
Issue 2: Lifecycle Deficit, Issue 2: Lifecycle Deficit, ElderlyElderly►Does the lifecycle deficit per elderly Does the lifecycle deficit per elderly
decline as the number of elderly rises? decline as the number of elderly rises? Preston and others argue yes – political Preston and others argue yes – political
power. power. If so, the rise in the old-age population will If so, the rise in the old-age population will
have a larger effect on capital have a larger effect on capital accumulation. accumulation.
National Transfer Accounts
Tradeoff: Spending per Elderly and Tradeoff: Spending per Elderly and Number of Elderly, 13 CountriesNumber of Elderly, 13 Countries
y = 11.993x + 4.5285
R2 = 0.4266
23456789
101112
0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5
Old-age Dependency Ratio: N(60+)/N(20-59)
LC
D E
lder
ly/Y
l(30
-49)
National Transfer Accounts
Tradeoff: Spending per Elderly and Tradeoff: Spending per Elderly and Number of Elderly, 13 CountriesNumber of Elderly, 13 Countries
23456789
101112
0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5
Old-age Dependency Ratio: N(60+)/N(20-59)
LC
D E
lder
ly/Y
l(30
-49)
UrJpUS
Fr
Sw
CRTw
ThCh
SK
Ph InIndo
National Transfer Accounts
Issue 3. Support Systems for Issue 3. Support Systems for the Elderly. the Elderly. ►How do they differ across countries?How do they differ across countries?►Do Asian countries rely more on Do Asian countries rely more on
familial transfers and Western familial transfers and Western countries more on public transfers? countries more on public transfers?
►Does the expansion of public systems Does the expansion of public systems crowd saving as hypothesized by crowd saving as hypothesized by Feldstein?Feldstein?
►Or familial transfers? Or familial transfers?
National Transfer Accounts
Old-Age Reallocation SystemsOld-Age Reallocation Systems
Saving
Public Transfers
FamilialTransfers
Traditional society?
Capital-based transformation
Social welfare transformation
National Transfer Accounts
Old-Age Reallocation SystemsOld-Age Reallocation Systems
Saving
Public Transfers
FamilialTransfers
Mixed Strategies
50-50 familial and saving
50-50 familial and public
50-50 saving and public
National Transfer Accounts
Old-Age Reallocation SystemsOld-Age Reallocation Systems
Saving
Public Transfers
FamilialTransfers
Public transfers and familial transfers are substitutes.
National Transfer Accounts
Old-Age Reallocation SystemsOld-Age Reallocation Systems
Saving
Public Transfers
FamilialTransfers
Feldstein: Public transfers to the elderly
crowd out saving.
National Transfer Accounts
Old-age Reallocation System, Selected Countries.
0
50
75
100
75
75
50
50
25
25
0
0
25
100
100
Asset-based
(%)
Public
transfers (%)
Family Transfers (%)
US
US elderly rely on asset-based reallocations
and public transfers.
National Transfer Accounts
Old-age Reallocation System, Selected Countries.
0
50
75
100
75
75
50
50
25
25
0
0
25
100
100
Asset-based
(%)
Public
transfers (%)
Family Transfers (%)
Thailand
Thai elderly rely on asset-based
reallocations and on familial transfers.
National Transfer Accounts
Old-age Reallocation System, Selected Countries.
0
50
75
100
75
75
50
50
25
25
0
0
25
100
100
Asset-based
(%)
Public
transfers (%)
Family Transfers (%)
US Thailand
Costa Rica
Japan
Taiwan
Costa Rica and Japan rely
heavily on public
transfers; no familial
transfers.
Taiwan has a relatively balanced support system.
National Transfer Accounts
ConclusionsConclusions
►Decline in fertility may Decline in fertility may Lead to more consumption by children Lead to more consumption by children
reducing the effect on savingreducing the effect on saving Lead to more spending on education for Lead to more spending on education for
children leading to second demographic children leading to second demographic dividend due to human capital dividend due to human capital investment.investment.
Influence familial support systems in ways Influence familial support systems in ways that have not yet been explored. that have not yet been explored.
National Transfer Accounts
ConclusionsConclusions
►Aging may lead to Aging may lead to Larger per capita lifecycle deficit Larger per capita lifecycle deficit
reinforcing the effects of agingreinforcing the effects of aging The economic effect will be some The economic effect will be some
unknown combination of the three:unknown combination of the three:►Increase saving and economic growthIncrease saving and economic growth►Increase the size of public programs and Increase the size of public programs and
budget deficits; orbudget deficits; or►Increase the burden on families which support Increase the burden on families which support
the elderly. the elderly.
National Transfer Accounts
ConclusionsConclusions
►The support systems for the elderly The support systems for the elderly are varied and do not conform to are varied and do not conform to simple regional classifications.simple regional classifications.
►The elderly in Costa Rica and Japan are The elderly in Costa Rica and Japan are relying on saving and public transfers. relying on saving and public transfers. Have public programs crowded out Have public programs crowded out familial transfers? familial transfers?
► In Taiwan and Thailand, the familial In Taiwan and Thailand, the familial support system is still important. support system is still important.
National Transfer Accounts
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 (ronlee), Co-DirectorMason, Andrew (amason), Co-Director Auerbach, Alan (auerbach) Miller, Tim (tmiller) Lee, Sang-Hyop (leesang) Donehower, Gretchen (gstockma) Ebenstein, Avi (ebenstei) Wongkaren, Turro (turro)
Takayesu, Ann (takayesa) Boe, Carl (cboe) Comelatto, Pablo (pabloc) Sumida, Comfort (comfort) Schiff, Eric (eric) Stojanovic, Diana (diana) Langer, Ellen (erlanger)Chawla, Amonthep (beet)Pajaron, Marjorie Cinco (pajaron)
National Transfer Accounts
Taiwan Key Institution: The Institute of Economics,
Academia Sinica, Taipei, Taiwan. Tung, An-Chi(actung), Country Leader
Lai, Mun Sim (Nicole)(munsim) Liu, Paul K.C.(kliu)
Andrew Mason Japan
Key Institutions: Nihon University Population Research Institute and the Statistics Bureau of Japan, Tokyo, Japan.
Ogawa, Naohiro(ogawa), Country LeaderMatsukura, Rikiya(matukura)
Fukui, Takehiro(jstat) Kondo, Makoto(kondo)
Akasaka, Katsuya(akasaka) Nemoto, Kazuro(nemoto) Makabe, Naomi(makabe)
Sato, Ryoko(rsato) Ogawa, Maki(mogawa) Murai, Minako(murai)
Obayashi, Senichi(obayashi) Suzuki, Kosuke(Suzuki)
National Transfer Accounts
AustraliaKey Institution: Australia National University
Jeromey Temple, Country LeaderBrazil
Turra, Cassio(cturra), Country Leader Lanza Queiroz, Bernardo(lanza)
Renteria, Elisenda Perez(elisenda) Chile
Key Institution: United Nations Economic Commission for Latin America and the Carribean, Santiago, Chile
Bravo, Jorge(jbravo2), Country LeaderChina
Key Institution: China Center for Economic Research, Beijing, China.
Ling, Li(Lingli), Country Leader Chen, Quilin(Chen)
National Transfer Accounts
France Wolff, Francois-Charles(wolff), Country Leader
Bommier, Antoine(bommier) Thailand
Key Institution: Economics Department, Thammasat University. Phananiramai, Mathana(Mathana), Country Leader
Chawla, Amonthep (Beet)(amonthep) Inthornon, Suntichai(Suntichai)
India Key Institution: Institute for Social and Economic Change, Bangalore
Narayana, M.R.(narayana), Country Leader Nanak Kakwani(kakwani) Ladusingh, L.(ladusingh)
MexicoKey Institution: Consejo Nacional de Población
Partida, Virgilio (virgilio), Country Leader Mejía-Guevara, Iván(ivan)
National Transfer Accounts
Indonesia Key Institution: Lembaga Demografi, University of Indonesia, Jakarta, Indonesia.
Maliki(maliki), Country Leader Wiyono, Nur Hadi(nhwiyono)
Nazara, Suahasil(nazara) Chotib(chotib) Philippines
Key Institution: Philippine Institute for Development Studies. Racelis, Rachel H.(Rachel), Country Leader
Salas, John Michael Ian S.(Salas) Sweden
Key Institution: Institute for Future Studies, Stockholm, Sweden. Lindh, Thomas(lindh), Country Leader
Johansson, Mats(Mats) Forsell, Charlotte (charlotte)
National Transfer Accounts
Uruguay Bucheli, Marisa(marisa), Country Leader
Furtado, Magdalena(furtado) South Korea
An, Chong-Bum (cban), Country LeaderChun, Young-Jun (yjchun) Lim, Byung-In (billforest) Kim, Cheol-Hee (Kimch)
Jeon, Seung-Hoon (jsh1105) Gim, Eul-Sik (kuspia)
Seok, Sang-Hun (good) Kim, Jae-Ho (ksud)
National Transfer Accounts
Austria Key Institution: Vienna Institute of Demography
Fuernkranz-Prskawetz, Alexia (alexia), Country LeaderSambt, Joze(joze)
Costa Rica Key Institution: CCP, Universidad de Costa Rica
Rosero-Bixby, Luis(lrosero), Country Leader Slovenia
Sambt, Joze(joze), Country Leader
National Transfer Accounts
United States Key Institution: Center for the Economics and Demography of Aging
Lee, Ronald(ronlee), Country LeaderMiller, Tim(tmiller)
Ebenstein, Avi(ebenstei) Boe, Carl(cboe)
Comelatto, Pablo(pabloc) Donehower, Gretchen(gstockma)
Schiff, Eric(eric) Langer, Ellen(erlanger)
NNational ational TTransfer ransfer AAccountsccounts
The EndThe EndSupport: Support:
National Institutes of Health National Institutes of Health NIA, R01-AG025488NIA, R01-AG025488NIA, R37-AG025247 NIA, R37-AG025247
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