N ational T ransfer A ccounts 1 The Lifecycle Deficit: A Review Sang-Hyop Lee University of Hawaii at Manoa

National Transfer Accounts1

The The LifeLifeccycle Deficitycle Deficit::A ReviewA Review

Sang-Hyop LeeSang-Hyop Lee

University of Hawaii at ManoaUniversity of Hawaii at Manoa


0.000

0.200

0.400

0.600

0.800

1.000

1.200

0 10 20 30 40 50 60 70 80 90+

Age

Consum

ption a

nd L

abor

Incom

e,

Per

Capita

Consumption

Labor Income

Note. Values normalized on per capita labor income of persons 30-49.

The Economic LifecycleThe Economic Lifecycle (per (per capita)capita)


AssumptionsAssumptions

►Per capita aPer capita age profiles are estimates of ge profiles are estimates of per capita values by per capita values by single year of agesingle year of age..

►All consumption and labor production All consumption and labor production can be assigned to can be assigned to individualsindividuals

►This assumes away pure public goods, This assumes away pure public goods, economies of scale, and other economies of scale, and other important features of consumption and important features of consumption and production. production.


General RuleGeneral Rule► Estimate the Estimate the per capitaper capita age-profile for the age-profile for the

variable using household survey data or variable using household survey data or administrative recordsadministrative records..

► Use population data to construct a Use population data to construct a preliminary aggregate age-profile.preliminary aggregate age-profile.

► Adjust the aggregate profile and the per Adjust the aggregate profile and the per capita profile to match a control total capita profile to match a control total taken from National Income and Product taken from National Income and Product Accounts or some other source.Accounts or some other source.

► However, detailed eHowever, detailed estimation method stimation method could vary across countries depending on could vary across countries depending on available available data.data.


Private ConsumptionPrivate Consumption► Standard approach of aStandard approach of allocating llocating hhousehold ousehold

cconsumption among the onsumption among the mmembersembers did not did not provide reasonable resultsprovide reasonable results Engel methodEngel method: f: food share is used to measure ood share is used to measure

households’households’ well-being well-being Rothbarth methodRothbarth method: w: welfare measured by elfare measured by

expenditure on adult goods per adultexpenditure on adult goods per adult► Alternative method Alternative method ((NTANTA))

Estimate Estimate education and health education and health consumption consumption directlydirectly

Estimate private capital consumption (rental Estimate private capital consumption (rental value of owner occupied housing + flow of value of owner occupied housing + flow of services from durables)services from durables)

Allocate other consumption indirectly (using Allocate other consumption indirectly (using Equivalence Scale)Equivalence Scale)


Allocating Allocating Private Education Private Education ConsumptionConsumption

( ) ( ) ( ) ( )eduj j jC a E a a NE a

• Private education consumption is regressed Private education consumption is regressed on the number of enrolled (E) and non-on the number of enrolled (E) and non-enrolled (NE) in each age group. enrolled (NE) in each age group.

• The age groups included will vary with the The age groups included will vary with the country and its enrollment rates. country and its enrollment rates.

• Use unsmoothed profileUse unsmoothed profile..


AllocatingAllocating Private Private Health Care Health Care ConsumptionConsumption► Often vOften very complex in part due to various ery complex in part due to various

source of financingsource of financing, which includes, which includes Private out-of-pocket expensePrivate out-of-pocket expense Private insurancePrivate insurance Public sectorPublic sector

► Available sources of data vary across Available sources of data vary across countriescountries..

► There are differences between NHA and NTAThere are differences between NHA and NTA E.g. NHA document expenditures rather than E.g. NHA document expenditures rather than

consumption. Thus it includes profits of insurance consumption. Thus it includes profits of insurance companies.companies.

► Estimate using one of four approaches. Estimate using one of four approaches.


Approach 1: Method based on Approach 1: Method based on individual utilization measures individual utilization measures from expenditure survey datafrom expenditure survey data

( ) ( ) ( ) ( )healthj j jC a IN a a OUT a

►Private health consumption is regressed Private health consumption is regressed onon the number of members using the number of members using inpatient services (IN) and outpatient inpatient services (IN) and outpatient services (OUT) in each age group. services (OUT) in each age group.


Approach 2: Based on age profile of Approach 2: Based on age profile of per capita utilization measuresper capita utilization measures

► Private health consumption is regressed on the number of members (M) and per capita utilization measure by age (U)

► Could be linear (the former) or non-linear (the latter)

( ) ( ) ( )healthj jC a U a M a

0 1

22

( ) ( ) ( ) ( )

( ) ( )

healthj j j

j

C U a M a aU a M a

a U a M a


Approach 3: Based on non-Approach 3: Based on non-parametric iterative methodparametric iterative method

► Assign health expenditure equally to each Assign health expenditure equally to each household member and then tabulate the per household member and then tabulate the per capita profile.capita profile.

► The per capita profile is then used as weights to The per capita profile is then used as weights to allocate health expenditure to household allocate health expenditure to household members producing a new per capita profile.members producing a new per capita profile.

► Repeat until the weights do not change much. Repeat until the weights do not change much. ► Unlike regression approach, it does not produce Unlike regression approach, it does not produce

negative coefficients for some age groups.negative coefficients for some age groups.


Estimated C after iterationEstimated C after iteration

AgeAgeTrue True

CC 11 22 33 44 55 66

55 1010 14.4414.44 11.9011.90 10.8310.83 10.3610.36 10.1610.16 10.0710.07

3535 3030 25.0025.00 27.4227.42 28.7428.74 29.4029.40 29.7229.72 29.8729.87

6565 2020 22.2222.22 21.5421.54 20.8520.85 20.4320.43 20.2120.21 20.1020.10

HHH NoH No Id NoId No AgeAge HHHH C C 11 22 33 44 55 66

11 11 55 7070 23.3323.33 15.6915.69 12.4812.48 11.0911.09 10.4910.49 10.2210.22

11 22 3535 7070 23.3323.33 27.1627.16 28.7628.76 29.4529.45 29.7629.76 29.8929.89

11 33 3535 7070 23.3323.33 27.1627.16 28.7628.76 29.4529.45 29.7629.76 29.8929.89

22 11 3535 8080 26.6726.67 27.6927.69 28.7228.72 29.3529.35 29.6929.69 29.8529.85

22 22 3535 8080 26.6726.67 27.6927.69 28.7228.72 29.3529.35 29.6929.69 29.8529.85

22 33 6565 8080 26.6726.67 24.6224.62 22.5622.56 21.3021.30 20.6320.63 20.3020.30

33 11 6565 4040 2020 20.0020.00 20.0020.00 20.0020.00 20.0020.00 20.0020.00

33 22 6565 4040 2020 20.0020.00 20.0020.00 20.0020.00 20.0020.00 20.0020.00

44 11 55 2020 1010 10.0010.00 10.0010.00 10.0010.00 10.0010.00 10.0010.00

44 22 55 2020 1010 10.0010.00 10.0010.00 10.0010.00 10.0010.00 10.0010.00


Approach 4: Based on simple Approach 4: Based on simple regressionregression

►Private health consumption is regressed on the number of household members (M).

►Could have negative coefficients—replace with zero.

►The least recommended approach.

( ) ( )healthj jC a M a


Estimating Other Household Estimating Other Household ConsumptionConsumption

► Assumed to be proportional to an Assumed to be proportional to an equivalence scale that is equal to 1 for equivalence scale that is equal to 1 for adults aged twenty or older, declines adults aged twenty or older, declines linearly from age 20 to 0.4 at age 4, and linearly from age 20 to 0.4 at age 4, and is constant at 0.4 for those age 4 or is constant at 0.4 for those age 4 or younger. younger.

( ) 1 0.6 (for 4)

( ) 1 [0.6*(20 )] /16 (for 4< <20)

( ) 1 (otherwise, i.e., 20)

a a

a a a

a a


Public ConsumptionPublic Consumption

► Allocated based on administrative records, and in Allocated based on administrative records, and in some cases, survey data.some cases, survey data.

► Public education consumptionPublic education consumption Formal education consumption: estimate by calculating Formal education consumption: estimate by calculating

unit cost per student per level.unit cost per student per level. Informal education consumption: estimate by dividing total Informal education consumption: estimate by dividing total

public informal education consumption by total population public informal education consumption by total population by age.by age.

► Public health care consumptionPublic health care consumption Health care purchased by individuals and reimbursed Health care purchased by individuals and reimbursed

through public programs: captured in household surveys.through public programs: captured in household surveys. Health care provided directly to individuals by government Health care provided directly to individuals by government

clinics: allocate using administrative records.clinics: allocate using administrative records. Collective health services: allocate on a per capita basis.Collective health services: allocate on a per capita basis.

► Other public consumption: equally to all membersOther public consumption: equally to all members


Normalized Consumption Ratio(normalized by simple average of YL pc for age 30-49 of each economy)

0.0

0.5

1.0

1.5

2.0

2.5

0 10 20 30 40 50 60 70 80 90+

Thailand 1996

Japan 2004

Indonesia 1996

Costa Rica 2004

Taiwan 1981

Taiwan 1986

Taiwan 1991

Taiwan 1998

Taiwan 2003

Korea 2000

Sweden 2003

China urban 2002

Uruguay 1994

US 2003

China rural 2002

France 2001

India 1999


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0 10 20 30 40 50 60 70 80 90+

C(a

)/Y

l(30

-49)

Range for developing countries

US

Japan

More on education

More on elderly (health care)

Consumption Profiles: Consumption Profiles: Industrialized vsIndustrialized vs.. Developing Developing Countries.Countries.


Estimating Estimating Labor IncomeLabor Income

► Labor income includes Labor income includes The compensation of employees The compensation of employees

. . WWages and salariesages and salaries

. . FringeFringe benefits benefits

. . DDeferred paymentseferred payments Labor’s estimated share of mixed incomeLabor’s estimated share of mixed income

(self-employment income)(self-employment income)► Does not include in-home activities which Does not include in-home activities which

does not produce market goods or does not produce market goods or servicesservices (e.g. child (e.g. childrearingrearing))


Imputing Labor Income for Imputing Labor Income for Unpaid Family WorkersUnpaid Family Workers► EEstimate using the age profile of earnings stimate using the age profile of earnings

of of employeesemployees as a share to allocate as a share to allocate household self-employhousehold self-employmentment income to self- income to self-employed workers including unpaid family employed workers including unpaid family workers.workers. Example: Two-third of thisExample: Two-third of this household household’s’s self- self-

employemploymentment income income equals equals 3030. Then,. Then, AgeAge Earnings per Earnings per

employeeemployeeImputedImputed

18 (unpaid)18 (unpaid) 200200 1010

44 (self 44 (self emp.)emp.)

400400 2020


Per Capita Private Income, Mexico, 2004

010,00020,00030,00040,00050,00060,00070,00080,00090,000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+Age

Mex

ican

Pes

os

YL Old

YL Imputedunincorp_old

unincorp_imp

earningsbenefits


Primary Target: Countries with Large Primary Target: Countries with Large Share of Self-Employment Income (per Share of Self-Employment Income (per capita)capita)

Kenya (1999)

0

0.2

0.4

0.6

0.8

1

1.2

Age

Self employment income 61.4%

Earnings

Philippines (1999)

0

0.2

0.4

0.6

0.8

1

1.2

50.0%

Thailand (2004)

0

0.2

0.4

0.6

0.8

1

1.2

44.5%

Mexico (2005)

0

0.2

0.4

0.6

0.8

1

1.2

36.3%

Indonesia (1999)

0

0.2

0.4

0.6

0.8

1

1.2

32.9%


Secondary Target: Countries with Secondary Target: Countries with Moderate Share of Self-Employment Moderate Share of Self-Employment IncomeIncomeJapan

0

0.2

0.4

0.6

0.8

1

1.2

1.4

22.8%

Uruguay (1994)

0

0.1

0.2

0.3

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0.5

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0.7

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0.9

1

19.8%

South Korea (2000)

0

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0.6

0.8

1

1.2

19.7%

Chile

0

0.2

0.4

0.6

0.8

1

1.2

18.0%

Taiwan (2003)

0

0.2

0.4

0.6

0.8

1

1.2

17.8%


Per Capita Labor Income Profile

0

0.2

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0.6

0.8

1

1.2

1.40 7

14 21 28 35 42 49 56 63 70 77 84

Age

Rel

ativ

e to

mea

n la

bor

inco

me

of 3

0-49

Chile (1997)Costa Rica (2004)Finland (2004)France (2001)India (1999/2000)Indonesia (1999)Japan (2004)Kenya (1994)Mexico (2005)Philippines (1999)Slovenia (2004)S.Korea (2000)Sw eden (2003)Taiw an (2003)Thailand (2004)Uruguay (1994)


Labor Income: Industrialized vsLabor Income: Industrialized vs.. Developing Countries.Developing Countries.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0 10 20 30 40 50 60 70 80 90+

Developing

Japan

US

Higher Yl in the 50-59 age group


CountryCountry YearYear Early AgeEarly Age Later AgeLater Age DurationDuration

IndonesiaIndonesia 1996 1996 29 29 58 58 2929

ThailandThailand 1996 1996 26 26 61 61 3535

TaiwanTaiwan 1998 1998 24 24 56 56 3232

JapanJapan 1999 1999 29 29 61 61 3232

United StatesUnited States 2000 2000 27 27 59 59 3232

Costa RicaCosta Rica 2004 2004 24 24 57 57 3333

Lifecycle Deficit and Surplus Lifecycle Deficit and Surplus AgesAges


Aggregate Age-ProfileAggregate Age-Profile

►Use population data to construct a Use population data to construct a preliminary aggregate age-profile.preliminary aggregate age-profile. Population data are available from the UN Population data are available from the UN

Pop Division for the period of 1950-2050 Pop Division for the period of 1950-2050 and also to 2300 (long term projection).and also to 2300 (long term projection).

Insure that population data have been Insure that population data have been adjusted to eliminate age heaping and adjusted to eliminate age heaping and under-reporting.under-reporting.


Aggregate ControlsAggregate Controls► Adjust the aggregate prAdjust the aggregate profile and the per capita ofile and the per capita

profile to match a control total taken from Nprofile to match a control total taken from NIPAIPA or some other source.or some other source. Private consumption: household final consumption Private consumption: household final consumption

expenditure + non-profit institutions serving expenditure + non-profit institutions serving households’ (NPISHs) final consumption expenditurehouseholds’ (NPISHs) final consumption expenditure

Public consumption: general government final Public consumption: general government final consumption expenditureconsumption expenditure

Earnings + fringe benefits: compensation of Earnings + fringe benefits: compensation of employees. NIPA excludes compensation received by employees. NIPA excludes compensation received by non-resident and remittances (on-going discussion)non-resident and remittances (on-going discussion)

Labor portion of self-employment income: mixed Labor portion of self-employment income: mixed income of household sectorincome of household sector


Some Adjustments are Some Adjustments are NeededNeeded► In NIPA, prices are market prices; in NTA, In NIPA, prices are market prices; in NTA,

prices are basic prices net of indirect taxes prices are basic prices net of indirect taxes (see Beet’s presentation for details)(see Beet’s presentation for details)

► In NIPA, private health consumption In NIPA, private health consumption reimbursed through public health insurance reimbursed through public health insurance programs (Medicare, NHI) are private health programs (Medicare, NHI) are private health consumption; in NTA it is reclassified as public consumption; in NTA it is reclassified as public consumption.consumption.

► In NIPA, non-housing consumer durable In NIPA, non-housing consumer durable consumption is measured by expenditure; in consumption is measured by expenditure; in NTA, consumption of it is the flow of services.NTA, consumption of it is the flow of services.


AcknowledgementAcknowledgement

Support for this project has been provided by the Support for this project has been provided by the following institutions:following institutions:

► the John D. and Catherine T. MacArthur Foundation; the John D. and Catherine T. MacArthur Foundation; ► the National Institute on Aging: NIA, R37-AG025488 the National Institute on Aging: NIA, R37-AG025488

and NIA, R01-AG025247; and NIA, R01-AG025247; ► the International Development Research Centre the International Development Research Centre

(IDRC);(IDRC);► the United Nations Population Fund (UNFPA); the United Nations Population Fund (UNFPA); ► the Academic Frontier Project for Private Universities: the Academic Frontier Project for Private Universities:

matching fund subsidy from MEXT (Ministry of matching fund subsidy from MEXT (Ministry of Education, Culture, Sports, Science and Technology), Education, Culture, Sports, Science and Technology), 2006-10, granted to the Nihon University Population 2006-10, granted to the Nihon University Population Research Institute.Research Institute.

NNational ational TTransfer ransfer AAccountsccounts2929

The EndThe End

Documents

N ational T ransfer A ccounts 1 The Lifecycle Deficit: A Review Sang-Hyop Lee University of Hawaii at Manoa