Population Aging, Intergenerational Transfers, and the Economy - PowerPoint PPT Presentation

Population Aging, Intergenerational Transfers, and the Economy Amonthep Chawla Thailand Development Research Institute (TDRI) November 8, 2010 Prepared for a Presentation at Macroeconomic Policy and Development Division , ESCAP

Background and Motivation • Changes in population age structure – Decreasing total fertility and rising life expectancy. • Economic lifecycle – Extended periods of dependency. • Complex and varied intergenerational economic systems – Families, firms, markets, the state, and civil society all play a role. – Important implications for poverty, economic growth, and generational equity. 2

Objectives • Develop a system of economic accounts that quantifies intergenerational flows in a comprehensive fashion. • 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 intergenerational economic systems. – macroeconomic effects of population aging. • Improve policy related to pensions, health care, education, and fertility. 3

Importance of National Transfer Accounts • Goal: Develop policies that respond effectively to the population age transition • Requirement: a comprehensive and deep understanding of the generational economy: – Social and economic institutions – Economic flows across age groups – System of public and private obligations 4

Outline I. National Transfer Account Basic Concepts • Economic Lifecycle • Age reallocations • II. Changes in Age Structure and Economic Growth: Demographic Dividends 5

I. National Transfer Account

National Transfer Accounts • Measure economic flows across age groups in a systematic and comprehensive way. • Flows are identified by the economic mechanisms and the mediating institutions. • Accounts complement the UN System of National Accounts and are constructed in a manner consistent with macroeconomic aggregates. 7

The Flow Account Identity • Inflows • Outflows – Labor Income – Consumption – Asset Income – Saving – Transfer Received – Transfers Paid + + τ + = + + τ − ( ) ( ) ( ) ( ) ( ) ( ) l a Y a Y a a C a S a a 144424443 144 4 2444 3 Inflows Outflows + − − = − + τ − τ ( ) ( ) ( ) ( ) ( ) ( ) l a C a Y a Y a S a a a 14 4 244 3 14 4 244 3 14 4 244 3 Lifecycle Deficit Asset-based Reallocations Net Transfers 144444 244444 3 Age Reallocations 8

Data 1. Aggregate Controls of the NT Flow Account are drawn from the National Income of Thailand (NESDB): 1981 ‐ 2004. 2. Age Profiles are estimated, relying on information from the household socio ‐ economic survey (SES): NSO. 11 survey years 1981, 1986, 1988, 1990, 1992, 1994, 1996, 1998, 2000, 2002 and 2004. 3. Data for the population by age are from population estimates and projections by the United Nations (UN): 1950 ‐ 2050. 9

National Income Account of Thailand in 1996 (Billions of Baht) Income Approach Expenditure Approach Compensation of Employees 1,353 Public Consumption Expenditure 470 Operating Surplus 2,041 Education 144 Income from Unincorporated Enterprises 1,065 Health 44 Income from Private Corporations and Property 846 Other 281 Property Income 476 Private Consumption Expenditure 2,480 Less: Interest Payment on Consumer Debt 62 Education 22 Less: Interest Payment on Public Debt 9 Health 164 Saving of Private Corporations 252 Housing 147 Corporate Income Tax 176 Other 2,147 Corporate Transfer Payment 13 Net Saving 1,026 Income from Public Enterprises and Property 130 Households 278 Government Income from Property and 66 Corporations 252 Entrepreneurship General Government 431 Saving of Government Enterprises 65 Government Enterprises 65 Less: Indirect Taxes 573 Subsidies 12 Less: Net Public Current Transfers from ROW 2 Less: Net Private Current Transfers from ROW 18 National Income 3,394 National Expenditure 3,394 10

Micro Data: the Socio-economic Surveys (SES) Survey Household Characteristics Consumption (Baht/Month) Years Age of No. of Household Head Education Health Total Households Size (years) (persons) 1981 44.4 66.5 127.3 3,757.8 11,894 4.4 1986 45.0 76.4 141.9 4,027.6 10,889 4.1 1988 45.5 53.0 135.7 3,699.9 11,017 3.9 1990 46.3 78.6 181.4 4,938.7 13,162 4.0 1992 46.2 112.2 221.5 6,167.7 13,432 3.7 1994 47.2 134.8 260.6 6,761.2 25,176 3.7 1996 47.8 165.9 331.2 7,936.7 25,069 3.6 1998 48.1 241.4 233.7 8,937.6 23,515 3.7 2000 48.5 244.8 261.5 8,473.2 24,705 3.5 2002 48.6 252.5 249.3 9,496.9 34,735 3.4 2004 49.7 263.8 262.1 10,809.3 34,803 3.3 Mean 47.04 153.62 218.75 6,818.77 20,763.4 3.77 Survey Individuals Characteristics Years Age of Income (Baht/Month) No. of Individuals Wage Farm Non-farm Property Observations (years) 1981 25.8 345.0 153.2 244.1 14.7 52,004 1986 27.2 422.2 134.3 227.7 14.6 45,072 1988 27.5 335.8 212.3 140.7 13.7 42,843 1990 28.3 516.4 253.8 217.9 15.2 52,879 1992 28.9 766.0 264.5 313.8 35.8 50,309 1994 30.2 936.0 272.2 402.3 26.6 93,735 1996 30.8 1,220.4 401.7 529.5 40.0 90,133 1998 31.2 1,411.0 429.6 602.0 65.9 85,891 2000 32.5 1,471.2 362.0 595.9 46.4 87,231 2002 32.5 1,677.5 439.3 736.9 51.6 118,550 2004 33.6 1,922.4 515.1 805.0 51.7 116,317 11 Mean 29.87 1,002.19 312.55 437.77 34.20 75,905.8

Population by Age 0.20 0.18 Proportion of population 0.16 0.14 1950 0.12 0.10 2000 0.08 0.06 2050 0.04 0.02 0.00 0 10 20 30 40 50 60 70 80 90 100 12

Method: Constructing NTA • Private Consumption – Education: regression – Health: regression and use individual health report of SES 2002 – Other: equivalence scale • Public Consumption – Education: enrollment rate & unit cost – Health: inpatient of public hospital (to be revised using NHA) – Other: per capita 13

Method (2) • Labor Income (tabulate from SES) – Earnings – Profits from farm & non ‐ farm (2/3) • Asset Income (assign to Head – tabulate from SES) – Profits from farm & non ‐ farm (1/3) – Property income: rent, dividend, interest – Other: proportional to property income 14

Method (3) • Public Transfers – Inflows: in ‐ kind & cash ( assign to recipients of benefits) – Outflows: taxes (based on income and consumption) • Private Transfers – Inter ‐ household transfers • inflows: tabulate from the SES • outflows: tabulate from the SES – Intra ‐ household transfers • Inflows: disposable inc < cons • outflows: disposable inc > cons 15

Example: Public Education Consumption of Thailand in 1996 Formal Education Informal Primary Secondary Higher Education Education Consumption 71,832 41,798 27,172 3,583 (Million Baht) Number of Students 7,935 3,927 1,333 58,465 (Thousands) Unit Cost 9,052 10,644 20,388 61 (Baht) 16

Aggregate Public Education Consumption for Thailand in 1996 (Millions of Baht) 12,000 Estimated Results 10,000 Aggregate Control 8,000 Public formal education Baht (Million) 6,000 consumption by age is estimated by summing unit cost per student per level weighted by the number 4,000 of students by age in each level 2,000 0 0 10 20 30 40 50 60 70 80 90+ Age 17

Per capita consumption and labor income, Thailand, 2004 120,000 The Economic Lifecycle 100,000 Labor Income Lifecycle surplus 80,000 Baht 60,000 Consumption 40,000 Lifecycle deficit Lifecycle deficit 20,000 0 0 10 20 30 40 50 60 70 80 90+ Age 18

Per capita lifecycle deficit, Thailand, 2004 80,000 Lifecycle deficit is the difference between consumption and labor 60,000 production at each age 40,000 20,000 Baht 0 0 10 20 30 40 50 60 70 80 90+ Lifecycle Surplus Ages:26-57 - 20,000 - 40,000 - 60,000 Age 19

Per capita private consumption, Thailand, 2004 70,000 Private Consum ption 60,000 50,000 Other Consum ption 40,000 Baht 30,000 20,000 Health 10,000 Housing Education 0 0 10 20 30 40 50 60 70 80 90+ 20 Age

Per capita public consumption, Thailand, 2004 30,000 25,000 20,000 Baht 15,000 10,000 Education Public Consum ption Other 5,000 Health 0 0 10 20 30 40 50 60 70 80 90+ 21 Age

Classification of Inter ‐ age Flows • Economic form – Asset ‐ based – Transfers • Mediating institution – Public flows are mediated by the government – Private flows are mediated by households, families, NGOs, private individuals, etc. 22

Per capita age reallocations, Thailand, 2004 80,000 60,000 Age Reallocations 40,000 20,000 Asset- based Reallocations Baht Transfers 0 0 10 20 30 40 50 60 70 80 90+ - 20,000 - 40,000 - 60,000 23 Age

Per capita net transfers received, Thailand, 2004 80,000 60,000 Transfers 40,000 Private 20,000 Baht Public 0 0 10 20 30 40 50 60 70 80 90+ - 20,000 - 40,000 - 60,000 24 Age

Per capita net intra ‐ household transfers, Thailand, 2004 60,000 Inflows 40,000 20,000 0 0 10 20 30 40 50 60 70 80 90+ Baht - 20,000 Net transfers - 40,000 Outflows - 60,000 - 80,000 25 Age