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Aging and Social Policy: An International Perspective

Aging and Social Policy: An International Perspective. Andrew Mason Sang-Hyop Lee Ronald Lee Chong-Bum An. Outline. Background: National Transfer Accounts Estimating the Economic Lifecycle Consumption and labor income by age for Korea Comparison with Taiwan and the US

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Aging and Social Policy: An International Perspective

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  1. Aging and Social Policy:An International Perspective Andrew Mason Sang-Hyop Lee Ronald Lee Chong-Bum An

  2. Outline • Background: National Transfer Accounts • Estimating the Economic Lifecycle • Consumption and labor income by age for Korea • Comparison with Taiwan and the US • The Age Reallocation System • Estimates for Korea • Comparison to Taiwan and the US • Conclusions

  3. National Transfer Accounts • System for measuring economic flows across age groups in a manner consistent with National Income and Product Accounts • Comprehensive • Asset-based reallocations • Public and private saving • Public and private credit • Public transfers • Private transfers • Inter vivos inter-household • Intra-household • Bequests

  4. National Transfer Accounts • Issues being explored: • How do economic support systems evolve within countries and differ across countries? • How do economic support systems interact with age structure to influence macro-economic performance and generational equity? • How should policies with respect to public pensions, health care, and education change over time? • What are the appropriate roles of the family and the state in providing support to children and the elderly?

  5. NTA Project Organization • Coordination • Ronald Lee (UC – Berkeley) • Andrew Mason (East-West Center/UH) • Core support: National Institute on Aging • Website: www.ntaccounts.org • Countries currently participating in the project • Korea: An Chong-Bum (SungKyunKwan University) • Taiwan: Andrew Mason and An-Chi Tung (Academia Sinica, Taipei) • US: Ronald Lee • 14 other countries are members of the project

  6. II. The Economic Lifecycle

  7. The Economic Lifecycle of Korea, Annual Aggregate Flows, Nominal Values, 2000 Surplus Labor Income Consumption Deficits

  8. Features of the Economic Lifecycle • Age refers to people not household heads. • Consumption • Includes all public and private consumption • Age allocation is based on consumption surveys (private) and administrative records (public) • Labor income includes • wages and salaries • labor’s estimated share of mixed income • taxes paid by employers on behalf of employees including a portion of indirect taxes

  9. Lifecycle of Korea (2000), Per Capita Values Labor Income Female LFPRs C declines with age Consumption Education Spending

  10. Lifecycle of Taiwan (1998) and Korea (2000), Per Capita Values Labor Income T K Lower C in ROK Consumption T K Higher LFPRs In ROK

  11. Lifecycle of US (2000) and Korea (2000), Per Capita Values US LFPRs > ROK LFPRs US Labor Income US K High US C is health care Consumption K ROK LFPRs > US LFPRs

  12. Some Implications • A given rise in the older population has a much greater impact in the US given current LC. However, aging is much more rapid in ROK. • Importance of female employment. • Reducing the LC deficit at old ages is not simply a matter of higher LFPRs among the elderly. High productivity jobs needed. • Rising health care costs is the Achilles heel if US experience is any guide.

  13. The Age Reallocation System

  14. The Transfer Option Tax workers. Provide cash and in-kind payments to the elderly Consumption Labor Income

  15. The Saving Option Labor Income Invest Consumption Asset Income & Dissaving

  16. Transfers vs. Saving • Both can satisfy reallocation objectives. • Transfers can do so immediately; saving only with a delay. • Saving is pro-growth. • Other research shows that aging can lead to substantial capital deepening if transfer programs are kept in check.

  17. Age Reallocations, Korea, 2000, Per Capita Annual Flows Total Inflows Total Outflows

  18. How are Taiwan, Korea, and the US financing old-age consumption? Asset-based reallocations much greater in the US! Total transfers much greater in Korea Large public transfers in US Note. Familial transfers do not include bequests.

  19. Why are asset-based reallocations so low in Korea and Taiwan? • Did familial transfers crowd out saving? • Did familial transfers fill a gap that saving could not meet? • High rates of growth in Korea and Taiwan led a 6-fold increase in lifetime earnings each generation. • Unlikely that saving rates could be high enough to achieve the flat age profiles of consumption.

  20. Lesson to Draw • Familial transfers served East Asia well by maintaining generational equity during a period of very rapid economic growth. • Slower economic growth and population aging  shift to asset-based reallocations. • High saving rate and shift away from familial support systems are welcome developments.

  21. The End

  22. Inflows Labor income Capital income Interest income Transfer inflows Outflows Consumption Investment Accumulation of credit Transfer outflows NT Flow Account Identity:

  23. NT Flow Account Identity:

  24. Lower panel measures the reallocation systems employed to satisfy the lifecycle deficits and surpluses at each age. Asset-based reallocations combine capital, other non-financial assets, and credit. Source: Mason, Lee, Tung, Lai, and Miller, forthcoming.

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