An Overview of National Transfer Accounts

Andrew Mason

May 2009

Outline

1. Introductory Remarks

2. National Transfer Flow Account

3. Wealth and Wealth Revaluation Account briefly described

Objectives

• Develop a system of accounts that measures the economic lifecycle and the flow of economic resources across age groups.

• Comprehensive approach that includes all reallocations: investment, credit, and public and familial transfers

• Consistent with and complementary to National Income and Product Accounts

Objectives

• International in scope to allow analysis of institutions and policies in countries at different levels of development and with different cultures.

• Historical depth to improve understanding about evolution of labor, consumption, saving, and public and private support systems

• Projections to support policy analysis

Importance

• Interage flows are large – about half of GDP.

• Profound effect on economic growth and generational equity (demographic dividends)

• Central to human capital investment

• Systems are strained by changes in age structure

Organization

• Lead institutions– East-West Center– Center for the Economics and Demography of Aging,

University of California – Berkeley• Funding

– National Institute on Aging– United Nations Population Fund– IDRC– MacArthur Foundation– Others

• Website: www.ntaccounts.org

Participating Countries

ASIA

China

India

Indonesia

Japan

Korea, S.

Philippines

Taiwan

Thailand

AFRICA

Kenya

Mozambique

Nigeria

Senegal

South Africa

EUROPE

Austria

Finland

France

Germany

Hungary

Spain

Slovenia

Sweden

NORTH AMERICA

United States

LATIN AMERICA

Brazil

Chile

Costa Rica

Mexico

Uruguay

OCEANIA

Australia

Conceptual Foundations

• Lee (1994), Samuelson (1958), Diamond (1965), and Willis (1988).

• Mason, Lee, Tung, Lai, Miller (2009); Lee, Lee, Mason (2008).

II. National Transfer Accounts

Most Important Graph in the World:The Economic Lifecycle

0

100

200

300

400

500

0 10 20 30 40 50 60 70 80

Age

Per

Cap

ita

Co

nsu

mp

tio

n a

nd

P

rod

uct

ion

Consumption

Labor Production

Surplus

Deficits

Total Reallocations: Lifecycle Deficit

-8000

-6000

-4000

-2000

0

2000

4000

6000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

Surplus

Deficits

Life cycle deficit is equal to the difference between consumption and labor income at each age.

NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal

Age

  Total 0-19 20-29 30-49 50-64 65+

Lifecycle Deficit 832 1,704 7 -1,329 25 424

Consumption 6,570 1,775 1,163 2,376 757 499

Private 5,290 1,244 951 2,040 640 414

Public 1,280 531 212 335 117 85

Less: Labor income 5,738 70 1,156 3,704 732 75

Lifecycle deficit is the difference between production and consumption over the lifecycle. All values are totals for the age group. Per capita values are also estimated.

Major Reallocation Systems

-8000

-6000

-4000

-2000

0

2000

4000

6000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

Public & Familial Transfers

Asset-basedReallocations

Asset-based reallocations involve inter-temporal exchange.

The Flow Account Identity

• Inflows– Labor Income– Asset Income– Transfer Received

• Outflows– Consumption– Saving– Transfers Paid

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

Classification of Flows

• Mediating institution– Public flows are mediated by the government– Private flows are mediated by households,

families, NGOs, private individuals, etc.– Rest of the World

• Economic form– Transfers– Asset-based reallocations

Public Sector

• Serves as an intermediary• Transfer function

– Takes resources from one age group (taxes)– Gives those resources to another age group

• In-kind transfers, e.g., health, education, national defense, etc.

• Cash transfers, e.g., public pension programs, unemployment benefits, welfare programs, etc.

• Asset-related function– Saves on behalf of the population (age groups)– Borrows from investors (age groups) on behalf of

taxpayers (age groups)– Earns asset income and pays interest on debt

Private Sector

• Intermediaries: households, families, NGOs, private individuals

• Transfer function: individuals give and receive transfers– Inter-household transfers including to ROW– Intra-household transfers– Capital transfers, e.g., bequest (not included in flow account)

• Asset related function– Accumulate and dis-accumulate assets

• Capital• Public and private debt

– Asset income

Table 1. A Classification of NTA Reallocations.

Asset –based Reallocations

TransfersCapital Credit

PublicPublic infrastructure

Public debtStudent loans

Money

Public educationPublic health careUnfunded pension

plans

Private

HousingConsumer durablesFactories

FarmsInventories

Consumer credit

Familial support of children and parentsBequestsCharitable contributions

Source: Adapted from Lee 1994.

Households vs. Individuals

• Individual is the basic unit of analysis• Consumption, labor income, public transfers,

and intra-household private transfers are allocated to individuals;

• Some public transfers are assigned to household head.

• Inter-household private transfers are between household heads;

• Assets are held by the household head; saving is by household heads; asset income accrues to household head.

Public Transfer Inflows, Taiwan, 1998

0

5

10

15

20

25

30

35

40

45

0 10 20 30 40 50 60 70 80 90

NT

$ b

illi

on

Other Cash

Public Pensions

National HealthInsurance

Public Health Care

Public Education

Collective Goods andServices

Public Transfer Inflows and Outflows, Taiwan, 1998

-80

-60

-40

-20

0

20

40

60

0 10 20 30 40 50 60 70 80 90

NT

$ b

illi

on

Inflows

Outflows

Net Public Transfers and the Lifecycle Deficit, Taiwan 1998

-150

-100

-50

0

50

100

150

0 10 20 30 40 50 60 70 80 90

NT

$ b

illi

on

Net Inflows

Lifecycle deficit

Net Private Transfer, Taiwan, 1998

-100

-80

-60

-40

-20

0

20

40

60

80

100

0 10 20 30 40 50 60 70 80 90

NT

$ b

illi

on

Intra-household

Inter-household

Transfers and the Lifecycle Deficit

-150

-100

-50

0

50

100

150

0 10 20 30 40 50 60 70 80 90

NT

$ b

illio

n

Total transfers

Public transfers

Lifecycle deficit

Asset-based Reallocations, Taiwan, 1998

-10

0

10

20

30

40

50

60

70

80

90

0 10 20 30 40 50 60 70 80 90

NT

$ b

illi

on

Asset Income

Less: Saving

Net inflow: asset income

exceeds saving.

Net outflow: saving

exceeds asset

income.

NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal

Age

  Total 0-19 20-29 30-49 50-64 65+

Reallocations 832 1,704 7 -1,329 25 424

Asset-based reallocations 861 -5 -101 414 271 282

Income on Assets 2,456 4 175 1,539 528 211

Less: Saving 1,595 9 276 1,126 256 -72

Transfers -29 1,710 108 -1,742 -246 141

Public 2 611 51 -673 -103 116

Private -31 1,099 -18 -1,155 -52 95

Bequests 0 0 75 86 -91 -70

Lower panel measures the reallocation systems employed to satisfy the lifecycle deficits and surpluses at each age.

NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal

Age

  Total 0-19 20-29 30-49 50-64 65+

Reallocations 832 1,704 7 -1,329 25 424

Asset-based Reallocations 861 -5 -101 414 271 282

Income on Assets 2,456 4 175 1,539 528 211

Less: Saving 1,595 9 276 1,126 256 -72

Transfers -29 1,710 108 -1,742 -246 141

Public 2 611 51 -673 -103 116

Private -31 1,099 -18 -1,155 -52 95

Bequests 0 0 75 86 -91 -70

Asset-based reallocations are equal to asset income (profits, interest income and rent) less saving. Age groups with negative asset reallocations are saving in excess of their asset income.

NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal

Age

  Total 0-19 20-29 30-49 50-64 65+

Reallocations 832 1,704 7 -1,329 25 424

Asset-based Reallocations 861 -5 -101 414 271 282

Income on Assets 2,456 4 175 1,539 528 211

Less: Saving 1,595 9 276 1,126 256 -72

Transfers -29 1,710 108 -1,742 -246 141

Public 2 611 51 -673 -103 116

Private -31 1,099 -18 -1,155 -52 95

Bequests 0 0 75 86 -91 -70

Net transfers consist of public transfers (cash transfers + in-kind transfers less taxes) and private transfers (mostly familial transfers). Positive values imply that inflows exceed outflows.

Issue 1: Lifecycle Deficit, Children

• Does the lifecycle deficit per child increase as the number of children declines? – Becker quality-quantity tradeoff– If so, the decline in fertility will have a smaller

effect on capital accumulation. – However, if consumption is higher because

parents are spending more on education, then human capital will increase as the number of children declines.

Per Capita Lifecycle Deficit, Japan 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.

Tradeoff: Spending per Child and Number 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)

Tradeoff: Spending per Child and Number 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

Issue 2: Lifecycle Deficit, Elderly

• Does the lifecycle deficit per elderly decline as the number of elderly rises? – Preston and others argue yes – political

power. – If so, the rise in the old-age population will

have a larger effect on capital accumulation.

Tradeoff: Spending per Elderly and Number 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)

Tradeoff: Spending per Elderly and Number 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

Issue 3. Support Systems for the Elderly.

• How do they differ across countries?

• Do Asian or African countries rely more on familial transfers and Western countries more on public transfers?

• Does the expansion of public systems crowd out saving as hypothesized by Feldstein?

• Or familial transfers?

Old-Age Reallocation Systems

Saving

Public Transfers

FamilialTransfers

Traditional society?

Capital-based transformation

Social welfare transformation

Old-Age Reallocation Systems

Saving

Public Transfers

FamilialTransfers

Mixed Strategies

50-50 familial and saving

50-50 familial and public

50-50 saving and public

Old-Age Reallocation Systems

Saving

Public Transfers

FamilialTransfers

Public transfers and familial transfers are substitutes.

Old-Age Reallocation Systems

Saving

Public Transfers

FamilialTransfers

Feldstein: Public transfers to the elderly

crowd out saving.

Austria

Costa Rica

Japan

Finland

Mexico

Philippines

S. Korea

Taiwan

ThailandUS

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

Reallocation System, 65+, Reallocation System, 65+, Selected Countries for a Recent Selected Countries for a Recent

YearYear

Source: Chawla (2008)

65

70

75

80

85

90+

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

Thailand Elderly by Age (2004)

Source: National Transfer Accounts

65

70

75

80

8590+

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

South Korea (2000)

Similar to Thailand butpublic transfers

covering 1/3 of support

Source: Mejia-Guevara (2008)

70

75

80

85

90+

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

Mexico (2004)

Mexico like S Koreaexcept family transfers

play a less signifcant role.

Source: Lee, Lee & Mason (2007)

6570

75 80

85

90+

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

United States (2003)

Unlike previous examplespublic transfers increase

with age rather than familial transfers

Source: Ogawa, Mason, Chawla & Matsukura (2008)

65

70

75

80

85

90+

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

Japan (2004)

Intermediate case. Bothfamilial transfers and

public transfers increasewith age.

Source: Fuernkranz-Prskawetz & Sambt (2008)

6570

8085

90+

75

1/3

1/3

1/3

2/3

2/3

2/3

Assets

PublicTransfers

FamilyTransfers

Austria (2000)

Extreme case. No upwardfamilial transfers; little reliance on asset-based reallocations.

Public sector dominates.

Conclusions

• Decline in fertility may – Lead to more consumption by children

reducing the effect on saving– Lead to more spending on education for

children leading to second demographic dividend due to human capital investment.

– Influence familial support systems in ways that have not yet been explored.

Conclusions

• Aging may lead to – Larger per capita lifecycle deficit reinforcing

the effects of aging– The economic effect will be some unknown

combination of the three:• Increase saving and economic growth• Increase the size of public programs and budget

deficits; or• Increase the burden on families which support the

elderly.

Conclusions

• The support systems for the elderly are varied and do not conform to simple regional classifications.

• The elderly in Costa Rica and Japan are relying on saving and public transfers. Have public programs crowded out familial transfers?

• In Taiwan and Thailand, the familial support system is still important.

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-Director

Mason, 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)

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)

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)

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)

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)

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)

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

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)

The End

Support: National Institutes of Health

NIA, R01-AG025488NIA, R37-AG025247