Future Directions for the Demography of Aging Proceedings of a Workshop (2018) / Chapter Skim
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7 Intergenerational Transfers and the Older Population - Andrew Mason and Ronald Lee
7 Intergenerational Transfers and the Older Population - Andrew Mason and Ronald Lee
Pages 187-214
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From page 187... ...
In some societies, intergenerational family transfers are also an important part of the old-age support system. Governments also are heavily involved in intergenerational transfers through public programs for education, health care, and pensions.
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From page 188... ...
THE CHANGING DEMOGRAPHIC AND ECONOMIC SETTING Demographic forces are important for any system of intergenerational transfers because they determine the numbers of those giving transfers and those receiving them. Transfers given must always equal transfers received; hence, changing population age distributions require adjustments in the per capita donations or receipts.
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From page 189... ...
Standard measures of population aging, including those used above, are based on chronological age. With improving health and vitality at older ages, alternative measures of aging are being explored.
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From page 190... ...
THEORETICAL FOUNDATIONS FOR INTERGENERATIONAL TRANSFERS The elderly depend heavily on intergenerational transfers and, in their absence, many would face lives of insecurity and impoverishment. The elderly are also an important source of intergenerational transfers, supporting their own descendants and, through their taxes, non–family members of younger generations.
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From page 191... ...
combines altruism, investment motives, and market failure in a theory of intergenerational transfers. Parents care about the present and future well-being of their children, and they allocate their resources accordingly, providing for their children's current consumption and investing in their human capital to raise their future income.
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From page 192... ...
Enter population aging: with slowing population growth rates and increasing numbers of elderly per worker, transfer programs for the elderly appear to be in trouble. An alternative to relying on intergenerational transfers is to invest in productive capital, yielding a rate of return determined by markets and the underlying health of the economy.
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From page 193... ...
There are many other ways in which public and private transfers interact with one another and with other aspects of economic behavior. Any transfer system alters economic incentives, influencing labor supply, saving, investment in human capital, and health care usage.
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From page 194... ...
. Second, they can rely on intergenerational transfers from family Per capita values Aggregate values FIGURE 7-1 National Transfer Account, United States, 2011.
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From page 195... ...
life-cycle deficit for children and the elderly combined was almost $5 trillion in 2011, more than 53 percent of total labor income (see Table 7-1)
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From page 196... ...
. Net public transfers to these young totaled $1.3 trillion (14.5% of total labor income)
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From page 197... ...
In countries where the gaps between per capita labor income and per capita consumption are low among seniors, aging will be much less disruptive than in countries where the gaps are large. Moreover, countries vary greatly in the extent to which they rely on intergenerational transfers to fill those gaps.
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From page 198... ...
. In 2015 the estimated GAP ratio for all countries combined was 11.5 percent of total labor income.3 The GAP ratio is closely related to the OADR.
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From page 199... ...
Intergenerational Transfers A large GAP ratio represents a high potential demand for intergenerational transfers to seniors. However, as explained above, the old-age deficit may be funded by relying on assets.
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From page 200... ...
: asset-based reallocations are 146 percent of the life-cycle deficit, net public transfers are 2 percent, and net private transfers are 48 percent. is relying exclusively on private transfers.
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From page 201... ...
Public transfers dominate in most continental European and Latin American countries. Except for Spain and El Salvador, net public transfers fund at least two-thirds of the life-cycle deficit in this group.
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From page 202... ...
TABLE 7-2 Reallocations as a Share of the Life-Cycle Deficit, Ages 60 and Older and 65 and Older 202 60 and Older 65 and Older Public Private Asset-Based Public Private Asset-Based Country Code Year Transfers Transfers Reallocations Transfers Transfers Reallocations Low Transfer Group 0.01 –0.24 1.23 0.05 –0.07 1.02 Cambodia KH 2009 0.06 0.22 0.71 0.06 0.22 0.72 El Salvador SV 2010 0.16 0.04 0.79 0.18 0.15 0.67 India IN 2004 0.02 –0.14 1.11 0.03 0.02 0.95 Indonesia ID 2005 0.00 –0.79 1.79 0.02 –0.48 1.46 Philippines PH 1999 –0.09 –0.27 1.36 –0.01 0.05 0.96 South Africa ZA 2005 –0.13 –0.40 1.53 0.00 –0.26 1.27 Thailand TH 2011 0.03 –0.34 1.31 0.08 –0.22 1.13 Balanced Group 0.43 0.13 0.44 0.46 0.17 0.37 China CN 2007 0.57 0.17 0.26 0.56 0.20 0.25 Japan JP 2004 0.52 –0.03 0.51 0.57 0.01 0.42 South Korea KR 2000 0.36 0.08 0.56 0.36 0.21 0.43 Taiwan TW 2010 0.27 0.29 0.44 0.35 0.28 0.38 Partially Balanced Group 0.40 –0.12 0.72 0.46 –0.08 0.62 Australia AU 2010 0.40 –0.01 0.61 0.47 0.02 0.51 Mexico MX 2004 0.33 –0.41 1.08 0.37 –0.25 0.89 Spain ES 2000 0.59 –0.10 0.51 0.63 –0.13 0.50 United Kingdom GB 2007 0.38 0.00 0.61 0.46 0.00 0.55 United States US 2011 0.28 –0.07 0.80 0.37 –0.05 0.68
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From page 203... ...
Also see Lee and Mason (2011) , United Nations Population Division (2013)
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From page 204... ...
In three of the six Latin American countries where net public transfers to the elderly are very large, downward familial transfers are substantial. The evidence for a tradeoff between public and private transfers is limited.
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From page 205... ...
This would particularly be true in continental Europe and Latin America, where net public transfers to the elderly as a share of total labor income are projected to double from already high levels. In another important group of aging societies, Anglo-American countries and East Asian countries, net public transfers would increase substantially but would not approach the levels found in Europe and Latin America.
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From page 206... ...
The pace of aging is particularly rapid during the next two decades. The average GAP ratio is lower in upper-middle-income countries, but the increase is very substantial, rising from 8 percent of total labor income in 2017 to 24 percent in 2065.
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From page 207... ...
. For the low-transfer countries, aging has had little impact in the past and only asset-based reallocations are projected to increase in the future, rising from roughly 5 percent of total labor income currently to 20 percent FIGURE 7-5 Projected reallocations to adults 65 and older as a share of total labor income, four reallocation groups (see Figure 7-3 and accompanying text)
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From page 208... ...
The balanced country group is projected to experience a substantial increase in net public transfers to those 65 and older, with public transfers as a share of total labor income increasing from about 5 percent in 1950 to over 20 percent in 2065. A distinctive feature of the balanced group is that private transfers rise substantially between now, at 1.6 percent of total labor income, and 2065, at 9.1 percent of total labor income.
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From page 209... ...
If older workers remain in the labor force, evidence strongly suggests that young workers will not be adversely affected. Relatively straightforward policies, raising or eliminating the retirement age and reducing the incentives for early retirement created by high effective tax on labor income for older workers, will be effective (Gruber and Wise, 1999)
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From page 210... ...
National Transfer Accounts, used extensively in this paper, were developed to improve the linkages between demographic and macroeconomic data. The value of this approach is demonstrated by the widespread interest in constructing NTA.
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From page 211... ...
Consequently it is usually the public transfer systems that are particularly vulnerable to population aging. Even outside Europe and Latin America, the share of national resources needed to support old-age systems would grow substantially in the absence of significant reform.
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From page 212... ...
American Economic Review, 94(1)
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From page 213... ...
. Demographic change, welfare, and intergenerational transfers: A global per spective.
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From page 214... ...
, Population Aging, Intergenerational Transfers and the Macroeconomy (pp.
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