National Transfer Accounts: Goals, Accomplishments, Challenges

1. National Transfer Accounts: Goals, Accomplishments, Challenges Andrew Mason January 2007 Berkeley National Transfer Accounts

2. Outline of Talk • Brief overview of the project and National Transfer Accounts (NTA) • Early results, issues, and difficulties • Economic Lifecycle • Reallocation Systems • Bequests • Projecting or Simulating NTA • Other Issues • Accomplishments National Transfer Accounts

3. I. Overview of NTA National Transfer Accounts

4. Project is Motivated by 3 Points • Economic lifecycle is a pervasive feature of all economies; it leads to the shift of large amounts of resources from the working ages to the dependent ages. • Reallocation systems are varied involving: • Public and private sectors • Investment, credit, and transfers • Changes in population age structure interact with the economic lifecycle, the reallocation system, and public policy to influence: • economic growth, • intergenerational equity, • saving, wealth, and other important features of the macroeconomy. National Transfer Accounts

5. Goals of the NTA Project • Develop a system of economic accounts that can be used to study the macroeconomic implications of aging. • Estimate the accounts with historical depth for economies with different cultures, levels of development, economic systems and policies. • Analyze and explain • variation in the economic lifecycle and the reallocation systems, • macroeconomic effects of population aging, • economic implications of pension, health care, education, child subsidies, and other policy. National Transfer Accounts

6. Important Features of National Transfer Accounts • Comprehensive approach: • All mechanisms for shifting resources from one age group to another are incorporated into the accounts. • Both public and private institutions are incorporated. The role of the family is emphasized. • NTA is consistent with and complementary to NIPA and GA. National Transfer Accounts

7. Important Features of NTA • NTA consists of 3 accounts • Flow Account measures the economic flows to and from each age group during a calendar or fiscal year. • Wealth Account measures the wealth associated with each flow – assets and transfer wealth. • Wealth Revaluation Account measures the changes in wealth due to changes in asset prices, interest rates, and public policy. • Emphasis to date and in this presentation is on the flow account. National Transfer Accounts

8. Inflows Labor Income Asset Income Transfer Inflows Outflows Consumption Saving Transfer Outflows The Flow Account Identity National Transfer Accounts

9. National Transfer Accounts

10. II. The Economic Lifecycle. Note: Mean of values for Costa Rica 2004, Indonesia 1996, Taiwan 1977, and Thailand 1996. Source: Lee and Mason 2007. National Transfer Accounts

11. Lifecycle Deficit and Surplus Ages Span of surplus ages is about 3 decades. No apparent relationship to development. National Transfer Accounts

12. Developing Consumption Profile: Mean, Minimum, and Maximum. Based on Taiwan 1977, Thailand 1996, Costa Rica 2004, and Indonesia 1996. Consumption profiles are relatively flat in developing countries. Note. Normalized on mean of labor income for 30-49-year-olds. Source: Lee and Mason 2007. National Transfer Accounts

13. Consumption Profiles: Industrialized vs Developing Countries. More on elderly (health care) More on education National Transfer Accounts

14. Developing Labor Income Profile: Mean, Minimum, and Maximum. Based on Taiwan 1977, Thailand 1996, Costa Rica 2004, and Indonesia 1996. National Transfer Accounts

15. Labor Income: Industrialized vs Developing Countries. Higher Yl in the 50-59 age group National Transfer Accounts

16. Challenges and Issues: Methodological • Consumption • What are the best methods for estimating private health expenditure age profiles? • Should cost of childbearing be allocated to the mother or to the child? • Labor Income • How do we estimate and incorporate deferred compensation? • Should we worry about seniority-based wage systems, w(a) .ne. vmp(a)? National Transfer Accounts

17. Challenges and Issues: Substantive • How does tax force influence labor income profiles? (Refer to Gruber and Wise) • How do we model consumption profiles? • Life-cycle model (Lee, Mason, and Miller SJE) • Altruism model (Mason and Lee, NUPRI) • Social planner model (work underway) National Transfer Accounts

18. Tax Force and Labor Income France Japan US Note: NTA measure is 1 – Yl(55-64)/Yl(30-49). National Transfer Accounts

19. Consumption by 3 generations in Taiwan: Birth cohorts of 1915, 1945, & 1975 Children Parents Grandparents 1945 1915 1975 Note that generation length in Taiwan is 30 years; hence, this approximates C by children, parents, and grandparents. National Transfer Accounts

20. Consumption Superimposed: Birth cohorts of 1915, 1945, & 1975 Matched by decline in C by parents and grandparents 1945 After age 21 consumption of 3 generations are virtually identical 1915 Rapid growth in C by children (until age 20) 1975 National Transfer Accounts

21. Consumption Superimposed: Birth cohorts of 1915 & 1945 1945 Simple correlation between parent and grandparent consumption is 0.95 1915 Conclusion: Consumption by grandparents explained almost entirely by current labor income of parents and by factors common to the parent and grandparent generations. Suggests a high degree of altruism. Note that during this period Taiwan introduced both National Health Insurance and public pension programs. National Transfer Accounts

22. III. The Age-Reallocation System Source: Mason, Lee, Tung, Lai, and Miller, forthcoming. National Transfer Accounts

23. Financing the Consumption of Children Reallocations to children dominated by transfers. Familial transfers more important in Taiwan than in the US. Source: Mason, Lee, Tung, Lai, and Miller (forthcoming). National Transfer Accounts

24. Old-Age Reallocation Systems Saving Capital-based transformation Social welfare transformation Traditional society? Familial Transfers Public Transfers National Transfer Accounts

25. Old-Age Reallocation Systems Saving Mixed Strategies 50-50 saving and public 50-50 familial and saving 50-50 familial and public Familial Transfers Public Transfers National Transfer Accounts

26. US elderly rely on asset-based reallocations and public transfers. National Transfer Accounts

27. Thai elderly rely on asset-based reallocations and on familial transfers. National Transfer Accounts

28. Costa Rica and Japan rely heavily on public transfers; no familial transfers. Taiwan has a relatively balanced support system. National Transfer Accounts

29. Challenges and Issues • The methods for constructing detailed asset-based reallocations have not been adequately tested: • Public versus private asset-based reallocations. • Capital- versus credit-based reallocations. • The methods for estimating bequests are underdeveloped: • Estimates of the co-variance between mortality and wealth are needed. • Estimates should include bequests of public capital and debt. • How can our estimates of asset-based reallocations and bequests contribute to research on saving motives, e.g., lifecycle model, bequest motive, etc.? National Transfer Accounts

30. Prime age adults are saving much less than their asset income. Active saving only by young adults. Source: Mason, Lee, Tung, Lai, and Miller forthcoming. National Transfer Accounts

31. Asset income important; not dis-saving. Saving < asset income at all ages. Source: Mason, Lee, Tung, Lai, and Miller forthcoming. National Transfer Accounts

32. IV. Bequests • In the NTA system bequests refer to the transfer of assets that arise as the older generation is succeeded by the younger generation. In some societies (the US?) this may coincide roughly with death, but even in the US assets may be transferred in advance of death. • The legacy of current generations is not limited to private wealth. In addition, we bequeath public assets and public debt to future generations. • Estimating the amount of bequests bequeathed by each age group and the age group to which the resources flow must rely on rough approximations which can be refined over time. National Transfer Accounts

33. Public Bequests • Important issue: Who owns public assets and debt? • Everyone? • Adults? • Beneficiaries (students own schools)? • Taxpayers? • Simplest approach with some intuitive appeal is to assume that taxpayers own public assets and debt (say in proportion to the taxes they paid in the previous year). • Modeling public bequests is relatively easy. National Transfer Accounts

34. Private Bequests • Private assets are by assumption owned by the household head. An issue of some importance is how the head is defined which varies from survey to survey. • Private bequests occur under the following conditions: • the household head dies and transfers his resources to a household headed by a person of a different age; • the household headship status is transferred from a person in one age group to a person in another age group; • two households with different aged heads merge. • As a practical matter measuring these events in the aggregate will capture only the transmission of assets across generations. National Transfer Accounts

35. Complexities of Modeling Private Bequests • Map from mortality of individuals to “mortality of heads” • Estimate the covariance between survival and wealth. Given positive covariance, bequests (measured in $) occur at a later age than deaths. • Estimate the age of the recipients. Do older children receive a larger share of bequests? National Transfer Accounts

36. V. Projecting or simulating NTA • Projecting flow accounts required for • calculation of transfer wealth, • construction of Generational Accounts, • policy analysis. • Methods • Analysis often depends on simple assumptions about key economic variables. • US Social Security Administration. • Generational Accounts. • Bommier, Lee, et al. calculations of NPV. • Mason estimates of 1st and 2nd dividend for UNPD. • General Equilibrium models National Transfer Accounts

37. General Equilibrium Model • Alternative models discussed by Ron • Importance to projection of NT Flow Account • Demography  capital  labor income. • Demography  consumption. • Dividend period C may grow more rapidly than Yl. • As support ratio declines, C will grow more slowly than Yl. • Demography  interest rates. • Conclusion: Major elements of the NT Flow Account must change as population age structure changes. National Transfer Accounts

38. Generic Demographic Transition over a 250-Year Period. Growth rate of income per effective consumer. Growth rate of consumption per effective consumer. Growth rate of economic support ratio. Source: Lee and Mason 2007 World Economic and Social Survey Background Paper. National Transfer Accounts

39. Modeling Issues to Resolve • How do we model consumption behavior? • How do we model international capital flows? • How do we model public policy? Familial policy? • Other? National Transfer Accounts

40. VI. Some Other Issues (from the website) • The incidence of consumption taxes. • Remittance income and what population counts should be used. • Smoothing. • Confidence intervals for our estimates. • Definition of household heads. • Defining savings as a residual category. • Impact of assigning benefits to specific individuals (children vs. parents) National Transfer Accounts

41. VII. Accomplishments Participating Countries National Transfer Accounts

42. Funding National Transfer Accounts

43. Dissertation Research • Completed • Maliki • Nicole Mun-Sim Lai • Gim Eul-Sik • In Process • Chawla Amonthep • Joze Sambt • Others? National Transfer Accounts

44. Dissemination • NTA and NBER working papers. A few published papers. • Papers in Arabic, English, French, Japanese, Korean, Portuguese, Russian, and Spanish. • IMF Finance & Development article. • Background papers for the UN General Assembly and the UN World Economic and Social Survey. • Numerous academic and policy seminars. • Media coverage (Asahi Shimbum, Die Presse, Sao Paulo). National Transfer Accounts

45. 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 National Transfer Accounts

46. 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 Leader Matsukura, 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

47. Australia Key Institution: Australia National University Jeromey Temple, Country Leader Brazil 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 Leader China Key Institution: China Center for Economic Research, Beijing, China. Ling, Li(Lingli), Country Leader Chen, Quilin(Chen) National Transfer Accounts

48. 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) Mexico Key Institution: Consejo Nacional de Población Partida, Virgilio (virgilio), Country Leader Mejía-Guevara, Iván(ivan) National Transfer Accounts

49. 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

50. Uruguay Bucheli, Marisa(marisa), Country Leader Furtado, Magdalena(furtado) South Korea An, Chong-Bum (cban), Country Leader Chun, 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