Comments on Intergenerational Transfers Age Structure and Macroeconomics

Comments on Intergenerational Transfers, Age Structure, and Macroeconomics Sang-Hyop Lee University of Hawaii at Manoa WEAI 83 rd Annual Conference, Honolulu, USA July 2, 2008 National Transfer Accounts

Do they look alike? • Some age profiles show similar pattern • Economic lifecycle is influenced by biology. Individual choices and economics constraints are similar. • Some age profiles are quite different. • Source of supports are quite different (triangle graphs) • However, even for similar age profiles, there are IMPORTANT differences and similarities across countries and over time. National Transfer Accounts

Important differences National Transfer Accounts

Source of differences 1. 2. Population structure matters Level of development matters 1. Consumption on elderly is high in rich countries, and is mostly due to medical expenditures 2. Richer countries have larger public consumption expenditures, on both health and education. 3. Consumption on children is low in low-income countries. 4. Richer countries have low LFPRs for children and elderly 5. Richer countries have low share of self-employment income National Transfer Accounts

Asset Capital-based transformation Social welfare transformation Traditional society? Familial Transfers Old-Age Reallocation Systems Source: Andrew Mason. National Transfer Accounts Public Transfers

Policy matters. Public Education Consumption of China 1995 & 2002, per capita Ratio National Transfer Accounts Age

Policy may have other consequences. Private education consumption of China 1995 & 2002, per capita Ratio National Transfer Accounts Age

Institution matters. Kenya and Nigeria Public consumption of Education National Transfer Accounts

Disaster/Crisis matters. National Transfer Accounts

Data matters. Constructing NTA requires lots of data sets. • A good data set has the properties of • • Extent (richness): it has the variables of interest at a certain level of details. • Reliability: the variables are measured without error. • Validity: the data set is representative. • E. g. ) Asset based reallocations • A lot of countries use information on inflow, but the profiles of outflow might be different • Find a proxy (until you find a better proxy) • One type of asset income • Use ratio of survey • Use other country data! (Kenya vs. Uganda) National Transfer Accounts

In a comparative analysis, 1. Computing confidence intervals helps. 2. Comparing countries with similar culture, policy, economic development helps (regional analysis) 3. Each country has its own issues; how does it make the country different from others? 1. China: urban vs. rural issues, negative LCD 2. India: public sector age reallocations. 3. Kenya & Nigeria: composition of consumption (education). Tax for education is earmarked. 4. Mexico: Revenue from oil, remittances. National Transfer Accounts

Comparative Analysis (Cont’d) In particular, replication of some interesting results in another country setting greatly increases the confidence of the results. • Comparing components is useful. (education/health/pension benefit/. . ) • Comparing within a country across years has an advantage. • Do more analysis. • National Transfer Accounts

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

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

but due to different productivity per worker. National Transfer Accounts

Conclusion; Let me repeat “The 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, (simulation) • economic implications of education, pension, health care, child subsidies, and other policy. National Transfer Accounts

Thank you. National Transfer Accounts