Low Fertility and Intergenerational Transfers

1. Low Fertility and Intergenerational Transfers Andrew Mason University of Hawaii – Manoa East-West Center Symposium on “Equality without Children?” Institute for Future Studies, Stockholm, 7-8 April, 2008 National Transfer Accounts

2. Motivation • Three features of the economy determine the magnitude, the direction, and economic implications of intergenerational transfers • Economic lifecycle • Population age structure • Systems for shifting resources across age • Saving • Public transfer programs • Familial Support systems National Transfer Accounts

3. Outline • Basic Concepts • National Transfer Account Project • Three Important Issues • Low fertility and flows to children • Aging and flows to the elderly • Support systems for the elderly National Transfer Accounts

4. The Economic Lifecycle Labor Income Consumption Note: Based on estimates for Costa Rica, Indonesia, Taiwan, and Thailand. National Transfer Accounts

5. Lifecycle combined with population determines the magnitude and direction of IG flows Old Population Young Population Yl Yl C C Note: Uses per capita consumption profiles shown above. National Transfer Accounts

6. Aggregate LC creates the demand for inter-age flows or reallocations. Labor Income Consumption Source: Ogawa et al. 2007. National Transfer Accounts

7. Governments Families Charitable Organizations National Transfer Accounts

8. Accumulation and dis-accumulation of debt Accumulation and dis-accumulation of assets National Transfer Accounts

9. II. National Transfer Accounts • Objective: • Develop and apply a comprehensive system of accounts that measures economic flows across age groups in a manner consistent with the System of National Accounts. • Conceptual foundation: • Lee (1994) but also Samuelson (1958), Diamond (1965), and Willis (1988). • Organization: • Collaboration between EWC/UH and UC-Berkeley. Core funding from NIA; NUPRI MEXT Academic Frontier Project, Government ofJapan. Sub-projects supported by UNFPA, IDRC, MacArthur Foundation and others. • Website: www.ntaccounts.org National Transfer Accounts

10. Participating Countries National Transfer Accounts

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

12. Flow Account Details • Consumption: public and private for health, education, housing, and other. • Public transfers: in-kind (health, education, other) and cash (pensions and other). • Private transfers: intra-household for health, education, housing, and all other; inter-household for other. • Asset-based reallocations: Public and private investment; public and private credit/debt. • Flows to ROW: remittances, foreign investment, foreign aid. National Transfer Accounts

13. Approach to Estimation • National Income Accounts and other aggregate statistics are used as aggregate controls • Age profiles are estimated using nationally representative surveys, e.g., income and expenditure surveys, labor force surveys, health expenditure surveys, etc. • Common methodology documented on www.ntaccounts.org National Transfer Accounts

14. Issue 1: Transfers to Children • Does the lifecycle deficit and transfers per child increase as the number of children declines? • Becker quality-quantity tradeoff • If so, the decline in fertility may have a smaller effect on aggregate consumption and saving. • If so, the decline in numbers may be offset by an increase in human capital and, hence, productivity. National Transfer Accounts

15. Per Capita Lifecycle Deficit, Japan 2004, Survival Weighted National Transfer Accounts Note. US 1985-89 life table used for all countries.

16. Tradeoff: Transfers to Children and Number of Children, 13 Countries National Transfer Accounts

17. Tradeoff: Transfers to Children and Number of Children, 13 Countries Jp US Ch Tw SK Th Sw Fr Indo Ur CR In Ph National Transfer Accounts

18. Issue 2: Lifecycle Deficit, Elderly • Does the lifecycle deficit per elderly increase with the share of the elderly? • Preston and others argue yes – political power. • If so, the rise in the old-age population may lead to a greater fiscal burden. National Transfer Accounts

19. Tradeoff: LC Deficit of the Elderly and Number of Elderly, 13 Countries National Transfer Accounts

20. Tradeoff: LC Deficit of the Elderly and Number of Elderly, 13 Countries Ur Jp US CR Fr Tw Th Ch Sw SK Ph In Indo National Transfer Accounts

21. Issue 3. Support Systems for the Elderly. • How do they differ across countries? • Do Asian countries rely more on familial transfers and Western and Latin American countries more on public transfers? • Does the expansion of public systems crowd saving as hypothesized by Feldstein? • Or familial transfers? National Transfer Accounts

22. Familial transfers equally important in Thailand, Korea, and Taiwan (36-40%). Net familial transfers near zero in US, CR, and J. Large public transfers in CR and J. More reliance on assets in CR & US. Net public transfers to elderly are zero in Thailand; about 25% in Taiwan and Korea. National Transfer Accounts

23. Reliance on assets in old-age National Transfer Accounts

24. 65-year-olds 67% assets, 2% public, 32% private 85-year-olds 23% assets, 39% public, 38% private National Transfer Accounts

25. National Transfer Accounts

26. National Transfer Accounts

27. From ages 65 to 80, familial share varies little. Public rising and asset-based declining. After 80 familial share is rising and asset-based declining. National Transfer Accounts

28. Asset-based reallocations and public transfers have increased over time; familial transfers have declined precipitously. NHI began in 1995; net public transfers increased. National Transfer Accounts

29. Summary of Support Systems • Estimates are preliminary • Old-age support systems • Show wide variation • Vary with the age of the elderly • Are changing rapidly • Familial support system for the elderly • Small in high-income countries (West and Japan) • Upward in rest of Asia, but declining over time • Downward in Latin America National Transfer Accounts

30. Warnings! • NIPA and NTA are incomplete • Time • Environment • Aggregate data vary in quality and coverage • Imputing values to individuals based on values for households is difficult National Transfer Accounts

31. Final Remarks • Economic resources shifted across age are enormous. • Important in many respects • Accumulation of human and physical capital • Generational equity • Economic growth • Externalities to childbearing • Measuring and studying these flows is difficult but essential. National Transfer Accounts

32. National Institute on Aging: R37-AG025488 and R01-AG025247 • NUPRI MEXT Academic Frontier Project, Government of Japan • John D. and Catherine T. MacArthur Foundation • International Development Research Center (IDRC) • United Nations Population Fund (UNFPA) Support for this project has been provided by: National Transfer Accounts

33. 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

34. Japan Key Institutions: Nihon University Population Research Institute and the Statistics Bureau of Japan, Tokyo, Japan. Ogawa, Naohiro, Country Leader Matsukura, Rikiya Maliki Obayashi, Senichi Kondo, Makoto Fukui, Takehiro Ihara, Hajime Suzuki, Kosuke Akasaka, Katsuya Moriki, Yoshie Makabe, Naomi Ogawa, Maki National Transfer Accounts

35. Australia Key Institution: Australia National University Jeromey Temple, Country Leader Brazil Turra, Cassio, Country Leader Lanza Queiroz, Bernardo Renteria, Elisenda Perez Chile Key Institution: United Nations Economic Commission for Latin America and the Carribean, Santiago, Chile Bravo, Jorge Mauricio Holz National Transfer Accounts

36. China Key Institution: China Center for Economic Research, Beijing, China. Ling, Li, Country Leader Chen, Quilin Jiang, Yu Taiwan Key Institution: The Institute of Economics, Academia Sinica, Taipei, Taiwan. Tung, An-Chi, Country Leader Lai, Mun Sim (Nicole) Liu, Paul K.C. Andrew Mason National Transfer Accounts

37. France Wolff, Francois-Charles, Country Leader Bommier, Antoine Thailand Key Institution: Economics Department, Thammasat University. Phananiramai, Mathana, Country Leader Chawla, Amonthep (Beet) Inthornon, Suntichai India Key Institution: Institute for Social and Economic Change, Bangalore Narayana, M.R., Country Leader Ladusingh, L. Mexico Key Institution: Consejo Nacional de Población Partida, Virgilio, Country Leader Mejía-Guevara, Iván National Transfer Accounts

38. Indonesia Key Institution: Lembaga Demografi, University of Indonesia, Jakarta, Indonesia. Maliki, Country Leader Wiyono, Nur Hadi Nazara, Suahasil Chotib Philippines Key Institution: Philippine Institute for Development Studies. Racelis, Rachel H., Country Leader Salas, John Michael Ian S. Pajaron, Marjorie Cinco Sweden Key Institution: Institute for Future Studies, Stockholm, Sweden. Lindh, Thomas, Country Leader Johansson, Mats Forsell, Charlotte National Transfer Accounts

39. Uruguay Bucheli, Marisa, Country Leader Furtado, Magdalena Rodrigo Ceni Cecilia Rodriguez South Korea An, Chong-Bum , Country Leader Chun, Young-Jun Lim, Byung-In Kim, Cheol-Hee Jeon, Seung-Hoon Gim, Eul-Sik Seok, Sang-Hun Kim, Jae-Ho National Transfer Accounts

40. Austria Key Institution: Vienna Institute of Demography Fuernkranz-Prskawetz, Alexia, Country Leader Sambt, Joze Costa Rica Key Institution: CCP, Universidad de Costa Rica Rosero-Bixby, Luis, Country Leader Maria Paola Zuniga Slovenia Sambt, Joze, Country Leader Hungary Key Institution: TARKI Social Research Institute Gal, Robert Medgyesi, Marton Finland Key institutions: The Finnish Center for Pensions And the Finnish Pension Alliance Vanne, Reijo Gröhn, Jukka Vaittinen, Risto National Transfer Accounts

41. United States Key Institution: Center for the Economics and Demography of Aging Lee, Ronald, Country Leader Miller, Tim Ebenstein, Avi Boe, Carl Comelatto, Pablo Donehower, Gretchen Schiff, Eric Langer, Ellen National Transfer Accounts

42. Kenya Mwabu, Germano Nigeria Soyibo, Adedoyin National Transfer Accounts

43. Thank you National Transfer Accounts