NNational ational TTransfer ransfer AAccountsccounts

Comments onComments onIntergenerational Transfers, Age Intergenerational Transfers, Age Structure, and MacroeconomicsStructure, and Macroeconomics

Sang-Hyop LeeSang-Hyop LeeUniversity of Hawaii at ManoaUniversity of Hawaii at Manoa

WEAI 83WEAI 83rdrd Annual Conference, Honolulu, Annual Conference, Honolulu, USAUSA

July 2, 2008July 2, 2008

National Transfer Accounts

Do they look Do they look alikealike??

• Some age profiles show similar patternSome age profiles show similar pattern• Economic lifecycle is Economic lifecycle is influenced by biology. influenced by biology.

Individual choices and economics constraints are Individual choices and economics constraints are similar.similar.

• Some age profiles are quite different.Some age profiles are quite different.

• Source of supports are quite different (triangle graphs)Source of supports are quite different (triangle graphs)

• However, even for similar age profiles, there are However, even for similar age profiles, there are IMPORTANT differences and similarities across IMPORTANT differences and similarities across countries and over time.countries and over time.

National Transfer Accounts

Important differencesImportant differencesAge Profile of Labor Income (Mexico, 2005)

0

0.2

0.4

0.6

0.8

1

1.2

Age

No

rmalized

lab

or

inco

me (

30-4

9)

Average of 25

National Transfer Accounts

Source of differencesSource of differences

• Population structure mattersPopulation structure matters

• Level of development mattersLevel of development matters• Consumption on elderly is high in rich countries, and is Consumption on elderly is high in rich countries, and is

mostly due to medical expenditures mostly due to medical expenditures

• Richer countries have larger public consumption Richer countries have larger public consumption expenditures, on both health and education.expenditures, on both health and education.

• Consumption on children is low in low-income countries.Consumption on children is low in low-income countries.• Richer countries haRicher countries haveve low LFPRs for children and elderly low LFPRs for children and elderly• Richer countries haRicher countries haveve low share of self-employment low share of self-employment

incomeincome

National Transfer Accounts

Old-Age Reallocation SystemsOld-Age Reallocation SystemsSource: Andrew Mason.Source: Andrew Mason.

Asset

Public Transfers

FamilialTransfers

Traditional society?

Capital-based transformation

Social welfare transformation

National Transfer Accounts

Policy matters.Policy matters.Public EducationPublic Education Consumption of China Consumption of China

China 1995 & 2002, per capita

Age

Ratio

0. 00

0. 01

0. 02

0. 03

0. 04

0. 05

0. 06

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88

Publ i c Publ i c Educat i on 1995y Publ i c Publ i c Educat i on 2002y

National Transfer Accounts

Policy may have other consequences.Policy may have other consequences. Private Private eeducationducation consumption of China consumption of China

China 1995 & 2002, per capita

Age

Ratio

0. 00

0. 02

0. 04

0. 06

0. 08

0. 10

0. 12

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88

Pr i vate Educat i on 1995y Pr i vate Educat i on 2002y

National Transfer Accounts

Institution matters.Institution matters.Kenya and Nigeria Public consumption of EducationKenya and Nigeria Public consumption of Education

Composition of Public Consumption in Health and Education

0.000

0.010

0.020

0.030

0.040

0.050

0.060

0.070

0 10 20 30 40 50 60 70 80 90+

Age in years

Norm

alis

ed to a

vera

ge la

bour

incom

e a

ges 3

0-4

9 y

ears

Kenya Education (Public) Kenya Health (Public)

Nigeria, Education (Public) Nigeria, Health (Public)

National Transfer Accounts

Disaster/Crisis matters.Disaster/Crisis matters.

Labor Income,China,Aggregate,2002

0

500

1000

1500

2000

2500

3000

3500

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90+

Age

10̂8

Yuan

Compensation to employees Self-employed Income

National Transfer Accounts

Data matters.Data matters.• Constructing NTA requires lots of data sets.Constructing NTA requires lots of data sets.• A good data set has the properties ofA good data set has the properties of

• Extent (richnessExtent (richness): it has the ): it has the variablesvariables of interest at a of interest at a certain level of details.certain level of details.

• ReliabilityReliability: the variables are : the variables are measured without errormeasured without error..• ValidityValidity: the data set is : the data set is representativerepresentative..

• E.g.) Asset based reallocations E.g.) Asset based reallocations • A lot of countries use information on inflow, but the profiles A lot of countries use information on inflow, but the profiles

of outflow might be different of outflow might be different • Find a proxy (until you find a better proxy)Find a proxy (until you find a better proxy)

• One type of asset incomeOne type of asset income• Use ratio of surveyUse ratio of survey• Use other country data! (Kenya vs. Uganda)Use other country data! (Kenya vs. Uganda)

National Transfer Accounts

In aIn a ccomparative omparative aanalysisnalysis,,

• Computing confidence intervals helps.Computing confidence intervals helps.• Comparing countries with similar culture, Comparing countries with similar culture,

policy, economic development helps policy, economic development helps (regional analysis)(regional analysis)

• Each country has its own issues; how does it Each country has its own issues; how does it make the country different from others?make the country different from others?• China: urban vs. rural issues, negative LCDChina: urban vs. rural issues, negative LCD• India: public sector age reallocations.India: public sector age reallocations.• Kenya & Nigeria: composition of consumption Kenya & Nigeria: composition of consumption

(education). Tax for education is earmarked. (education). Tax for education is earmarked. • Mexico: Revenue from oil, remittances.Mexico: Revenue from oil, remittances.

National Transfer Accounts

Comparative Analysis Comparative Analysis (Cont’d)(Cont’d)• In particular, replication of some In particular, replication of some

interesting results in another country interesting results in another country setting greatly increases the confidence setting greatly increases the confidence of the results.of the results.

• Comparing components is useful. Comparing components is useful. (education/health/pension benefit/..)(education/health/pension benefit/..)

• Comparing within a country across Comparing within a country across years has an advantage.years has an advantage.

• Do more analysis.Do more analysis.

National Transfer Accounts

E.g. of “Do more analysis”.E.g. of “Do more analysis”.India and Mexico has different India and Mexico has different labor income profile labor income profile

00.2

0.40.60.8

1

1.21.4

0 8

16

24

32

40

48

56

64

72

80

88

India

Mexico

National Transfer Accounts

Not mainly due to active Not mainly due to active population (L/N) by age,population (L/N) by age,

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0 7 14 21 28 35 42 49 56 63 70 77 84

Mexico

India

National Transfer Accounts

but due to different productivity but due to different productivity per worker.per worker.

0.000

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

0 7

14

21

28

35

42

49

56

63

70

77

84

Mexico

India

National Transfer Accounts

Conclusion; Let me repeatConclusion; Let me repeat “The g “The goals of the NTA oals of the NTA pprojectroject””• Develop a system of economic accounts that Develop a system of economic accounts that

can be used to study the macroeconomic can be used to study the macroeconomic implications of aging.implications of aging.

• Estimate the accounts with historical depth Estimate the accounts with historical depth for economies with different cultures, levels of for economies with different cultures, levels of development, economic systems and policies. development, economic systems and policies.

• Analyze and explainAnalyze and explain• variation in the economic lifecycle and the variation in the economic lifecycle and the

reallocation systems,reallocation systems,• macroeconomic effects of population aging, macroeconomic effects of population aging,

(simulation)(simulation)• economic implications of economic implications of education, pension,education, pension,

health care, child subsidies, and other policy.health care, child subsidies, and other policy.

NNational ational TTransfer ransfer AAccountsccounts

Thank you. Thank you.