Asset-Based Reallocations in National Transfer Accounts

1. Asset-based Reallocations Andrew Mason 4th NTA Workshop UC Berkeley National Transfer Accounts

2. Outline of Presentation • General Concepts • Comparative Results • Conceptual and Computational Issues National Transfer Accounts

3. General Concepts: NTA Classification of Asset-based Reallocations National Transfer Accounts

4. 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. National Transfer Accounts

5. 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 National Transfer Accounts

6. 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 National Transfer Accounts

7. Asset Income: Private Capital and Land National Transfer Accounts

8. Asset Income: Private Credit National Transfer Accounts

9. Asset Income: Public Capital and Land • Public capital: no capital income. • Public land (and other non-reproducible assets): has not been addressed. National Transfer Accounts

10. Asset Income: Public Credit 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. National Transfer Accounts

11. 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. National Transfer Accounts

12. National Transfer Accounts

13. 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. National Transfer Accounts

14. 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. National Transfer Accounts

15. Note: Some series include bequests of public assets and debt: Japan, Indonesia, others? Japan(0)=3.8 National Transfer Accounts

16. Japan(0)=-3.8 National Transfer Accounts

17. 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. National Transfer Accounts

18. National Transfer Accounts

19. National Transfer Accounts