Richard Easterlin's Continuing Contributions to Intergenerational Transfers: A Macro-Perspective

1. Presentation in Honor of Richard Easterlin’s Continuing Contributions: A Macro-Perspective on Intergenerational Transfers Ronald Lee UC Berkeley Material from NTA project, funded by NIA grants to Andy Mason and Ron Lee

2. References – downloadable from http://www.schemearts.com/proj/nta/web/nta/show/Working%20Papers • Ronald Lee and Andrew Mason, “A Research Plan for the Macroeconomic Demography of Intergenerational Transfers”, January 2004. • Antoine Bommier, Ronald Lee, Timothy Miller, and Stephane Zuber, “Who wins and who loses? Public transfer accounts for US generations born 1850 to 2090”, December 2004. • Andrew Mason, Ronald Lee, An-Chi Tung, Mun-Sim Lai, and Tim Miller, forthcoming. “Population Aging and Intergenerational Transfers: Introducing Age into National Accounts”, Economics of Aging Series, David Wise, ed. NBER and University of Chicago Press. • Ronald Lee, Sang-Hyop Lee, and Andrew Mason. “Charting the Economic Life-Cycle”, November 2005 (under review)

3. 1. Reallocation of income across age groups • Flows of income from individuals of one age to those of another age are a pervasive part of our everyday life, but from the point of view of national accounts they are largely invisible. • Some of these flows are attracting a lot of piecewise attention in terms of micro level motivations (investment in children, care for elderly parents, bequests, Social Security, Medicare) • Big picture is largely ignored.

4. 2. The economic life cycle: Labor earnings and consumption per capita Output per person per year Labor earnings, yl(x) + + + + + + Consumption, c(x) • - - - • - - - - • - - • - - - - Age

5. 3. Resource Reallocation Across Age and Time

6. 4. A Fundamental Change: The Historical Reversal of Direction of Flows • Some production and consumption profiles have been estimated • Direction of flows is indicated by the population weighted average ages of consumption and production • See various articles for theory and mathematical framework • Here go straight to results

7. 2050 +3 -2 United States [Lee & Miller] Lee, 2000, 2003 (see cv)

9. 5. Estimated age profiles of production and consumption • These come from NTA project • Research by teams working on US and Taiwan • Looks simple; actually a great deal of analysis lies behind them.

12. What institutions and mechanisms provide the flows that support these consumption patterns? • Source by age • Inter vivos familial transfers • bequests • Public transfers • Through assets (credit and capital)

13. Source: See Lee, Lee and Mason (2005).

14. Source: See Lee, Lee and Mason (2005).

15. Mason, Lee, Tung, Mun-Sim Lai, and Miller (2005)

16. Mason, Lee, Tung, Mun-Sim Lai, and Miller (2005)

17. How the elderly fund consumption Mason, Lee, TungMun-Sim Lai, and Miller (2005)

18. Another illustration of what can be done with historical depth and projections

19. Net Present Values of Benefits minus Taxes for Generations • Includes only Public Educ, Social Sec, and Medicare • NPVs calculated based on • estimates and projections of age specific taxes paid and benefits received, 1850-2200 • Discounted at 3% real • actual or projected survival

20. Net Present Value at birth of expected life time benefits for Social Security, Medicare and Public Education as % of lifetime earnings, for generations born 1850 to 2090 Total See Bommier, Lee, Miller and Zuber

21. USA and France: A Comparison (see Stephane Zuber) NPVs for the US NPVs for France

22. USA and France: Accounting for the differences (1) seeStephane Zuber Spending as Percent of GDP: US Spending as Percent of GDP: France

23. The End