April 1, 2006 1

Presentation in Honor of Richard Easterlin’s Continuing

Contributions: A Macro-Perspective on Intergenerational

TransfersRonald Lee

UC BerkeleyMaterial from NTA project, funded by NIA

grants to Andy Mason and Ron Lee

April 1, 2006 3

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)

April 1, 2006 4

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.

April 1, 2006 5

2. The economic life cycle: Labor earnings and consumption per capita

Age

Output per person per year

Labor earnings, yl(x)

Consumption, c(x)

+ + ++ + +

-- - -

-- - - -

-- -

-- - - -

April 1, 2006 6

3. Resource Reallocation Across Age and Time Form of Reallocation

Family

Institution

Market Public Sector

Capital HouseCarConsumer DurablesInventoriesEducation

Factories Inventories Farms

Social Infrastructure(Hospitals, Roads,Airports, Govt. Bldgs)

Transfers Child RearingCollege CostsGiftsBequestsHelp to Elderly

Government Debt Public EducationMedicaid, MedicareSocial SecurityFood StampsAFDC

Borrowing/Lending

Familial Loans"Transfers" with a quid pro quo

Credit Markets (mortgages, credit cards, bond issues)

Government Loans

April 1, 2006 7

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

April 1, 2006 8

United States [Lee & Miller]-2

+3 2050

Lee, 2000, 2003 (see cv)

April 1, 2006 9

April 1, 2006 10

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.

April 1, 2006 11

Figure 2A. Per Capita Labor Income and Consumption, Taiwan (1977)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

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

AgeSource: See Lee, Lee and Mason (2005) for methods and data sources for these estimates.

April 1, 2006 12

Figure 2B. Per Capita Labor Income and Consumption, US (2000)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

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

Age

Source: See Lee, Lee and Mason (2005) for methods and data sources for these estimates.

April 1, 2006 13

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)

April 1, 2006 14Source: See Lee, Lee and Mason (2005).

April 1, 2006 15Source: See Lee, Lee and Mason (2005).

April 1, 2006 16

Figure 5b. Components of Individual Age Reallocations, Taiwan, 1998

-400

-300-200

-100

0

100200

300

400

500600

700

0 10 20 30 40 50 60 70 80 90+

Age

Rea

llo

cati

on

s ($

NT

th

ou

san

ds)

.

Bequests Inter Vivos Transfers Public Transfers Asset Reallocation

Total Inflows

Total Outflows

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

April 1, 2006 17

Figure 6b. Components of Individual Age Reallocations, US, 2000

-40

-30

-20

-10

0

10

20

30

40

50

60

70

0 10 20 30 40 50 60 70 80 90+

Age

Rea

llo

cati

on

s ($

US

th

ou

san

ds)

.

Bequests Inter Vivos Transfers Public Transfers Asset Reallocation

Total Inflows

Total Outflows

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

April 1, 2006 18

How the elderly fund consumptionFigure 1. How the Elderly Finance Consumption in the US and

Taiwan (Age 65+)

35.323.3

61.842.5

-14.6 -14.1

4.4 33.2

15.113.1

-40

-20

0

20

40

60

80

100

120

140

USA (2000) Taiwan (1998)Perc

en

tag

e o

f C

on

su

mp

tio

n .

Public Transfers

Inter Vivos Transfers

Work

Bequests

Asset Reallocations

Mason, Lee, TungMun-Sim Lai, and Miller (2005)

April 1, 2006 19

Another illustration of what can be done with historical depth and

projections

April 1, 2006 20

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

April 1, 2006 21

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

April 1, 2006 22

USA and France: A Comparison (see Stephane Zuber)

-20

-15

-10

-5

0

5

10

15

Year of Birth

Education

Public Pensions + Health Benefits

Combined

-20

-15

-10

-5

0

5

10

15

Ye ar of B irth

Education

Public Pensions + Health Benefits

Combined

NPVs for the US

NPVs for France

April 1, 2006 23

USA and France: Accounting for the differences (1) seeStephane Zuber

0

5

10

15

20

25

30

35

Year

Education

Social Security

Medicare

Spending as Percent of GDP:US

0

5

10

15

20

25

30

35

Year

Education

Public Pensions

Health Benefits

Spending as Percent of GDP:France

April 1, 2006 24

The End