Comments on Intergenerational Transfers, Age Structure, and Macroeconomics

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Comments onIntergenerational Transfers, Age
Structure, and Macroeconomics

• Sang-Hyop Lee
• University of Hawaii at Manoa
• WEAI 83rd Annual Conference, Honolulu, USA
• July 2, 2008

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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.

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Important differences
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Source of differences

• Population structure matters
• Level of development matters
• Consumption on elderly is high in rich countries,
  and is mostly due to medical expenditures
• Richer countries have larger public consumption
  expenditures, on both health and education.
• Consumption on children is low in low-income
  countries.
• Richer countries have low LFPRs for children and
  elderly
• Richer countries have low share of
  self-employment income

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Old-Age Reallocation SystemsSource Andrew Mason.
Asset
Capital-based transformation
Social welfare transformation
Traditional society?
Familial Transfers
Public Transfers
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Policy matters. Public Education Consumption of
China
China 1995 2002, per capita
Ratio
Age
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Policy may have other consequences. Private
education consumption of China
China 1995 2002, per capita
Ratio
Age
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Institution matters.Kenya and Nigeria Public
consumption of Education
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Disaster/Crisis matters.
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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)

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In a comparative analysis,

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

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Comparative Analysis (Contd)

• 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.

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E.g. of Do more analysis.India and Mexico has
different labor income profile
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Not mainly due to active population (L/N) by age,
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but due to different productivity per worker.
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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.

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Thank you.