N ational T ransfer A ccounts Data Review (Hands On) Amonthep Chawla East-West Center & Nihon University Population Research Institute

NNational ational TTransfer ransfer AAccountsccounts

Data Review (Hands Data Review (Hands On)On)

Amonthep ChawlaAmonthep Chawla

East-West CenterEast-West Center& Nihon University Population & Nihon University Population

Research InstituteResearch Institute

National Transfer Accounts

ObjectivesObjectives

► To understand your surveys: your surveys To understand your surveys: your surveys may not provide all information needed to may not provide all information needed to construct NTAconstruct NTA Understand purposes of surveysUnderstand purposes of surveys Review questionnairesReview questionnaires Any missing information on income , expenditure Any missing information on income , expenditure

and demographic characteristicsand demographic characteristics► To aware that you may encounter To aware that you may encounter

estimation problems due to outliers, missing estimation problems due to outliers, missing data, sampling weights, smoothing, etc.data, sampling weights, smoothing, etc.

► To prepare survey data before estimating To prepare survey data before estimating age profiles necessary for NTAage profiles necessary for NTA


OutlineOutline

► I. Demographic variablesI. Demographic variables► II. Data cleaning II. Data cleaning ► III. Components and classifications of III. Components and classifications of

expendituresexpenditures► IV. Components of income IV. Components of income ►V. SmoothingV. Smoothing


I. Demographic VariablesI. Demographic Variables

► Age of individuals: what is the age limit?Age of individuals: what is the age limit?► Dummy for household headshipDummy for household headship► Dummy for school attendance (currently Dummy for school attendance (currently

attending school or not)attending school or not)► Education level for school attendance (if Education level for school attendance (if

currently attending school, what is the level currently attending school, what is the level of education: primary, secondary or higher of education: primary, secondary or higher education)education)

► Health characteristics (number of times Health characteristics (number of times visiting hospitals, health usage or any visiting hospitals, health usage or any information regarding to health condition)information regarding to health condition)

► Sampling weights (always use weight option)Sampling weights (always use weight option)


Household HeadsHousehold Heads

► How household heads are defined: economic How household heads are defined: economic head or self-reported head?head or self-reported head?

► Each household should have one person as a Each household should have one person as a household headhousehold head Two or more household heads: pick the oldest or Two or more household heads: pick the oldest or

the highest income, depending on culture or normthe highest income, depending on culture or norm No head: assign one personNo head: assign one person

► What is the minimum age for head?; should What is the minimum age for head?; should he/she be older than 15? Need to understand he/she be older than 15? Need to understand laws and culture of the countrylaws and culture of the country


Education: Enrolment RatesEducation: Enrolment Rates

► Plot enrolment rates by age and by education Plot enrolment rates by age and by education level level

► How does the result differ from other surveys, How does the result differ from other surveys, i.e. census and other government document?i.e. census and other government document?

► Any information on private or public school Any information on private or public school enrolmentenrolment

► Check minimum and maximum age of school Check minimum and maximum age of school enrolmentenrolment

► Is there minimum age of school enrolment for Is there minimum age of school enrolment for the kindergarten level? the kindergarten level?

► Be aware that childcare is not educationBe aware that childcare is not education


II. Data CleaningII. Data Cleaning

►Need to carefully check survey data in Need to carefully check survey data in order to avoid or detect possible data order to avoid or detect possible data problem by problem by summarizing data, using sampling weights, to summarizing data, using sampling weights, to

check for missing data, outliers, data check for missing data, outliers, data underestimating or overestimating, etc.underestimating or overestimating, etc.

Using scatter plots to detect outliers: be aware Using scatter plots to detect outliers: be aware that some extremely high health consumption that some extremely high health consumption (usually by the elderly) may be real(usually by the elderly) may be real

►Missing data: replaced with 0 or imputed, Missing data: replaced with 0 or imputed, depending on how serious this problem isdepending on how serious this problem is


III. Components and III. Components and Classifications of ExpendituresClassifications of Expenditures► Two types of expenditure: consumption and Two types of expenditure: consumption and

non-consumption expenditurenon-consumption expenditure► Avoid using non-consumption expenditure to Avoid using non-consumption expenditure to

estimate NTA private consumptionestimate NTA private consumption► Examples of non-consumption expenditures are Examples of non-consumption expenditures are

transfers (i.e., taxes, gifts or other transfers made to transfers (i.e., taxes, gifts or other transfers made to other households)other households)

asset income (negative asset income such as interest asset income (negative asset income such as interest expense on mortgage or consumer debt) expense on mortgage or consumer debt)

► Be cautious if using individual consumption Be cautious if using individual consumption rather than household consumption, i.e. missing rather than household consumption, i.e. missing datadata


Per Capita Private Consumption, J apan, 2004

0

50,000

100,000

150,000

200,000

250,000

0 10 20 30 40 50 60 70 80 90+

Age

Yen

Total Private Consumption

Other

Health

Durable

HousingEducation

Including non-consumptionOnly consumption

Double-hump consumption is more outstanding when non-consumption is included


Income TaxIncome Tax

► How to estimate income tax at the individual How to estimate income tax at the individual level: 2 methodslevel: 2 methods 1. Using household tax expenditures and 1. Using household tax expenditures and

allocating to each members proportionally to their allocating to each members proportionally to their taxable incometaxable income

2. Not using household tax data but using 2. Not using household tax data but using individual taxable income directly to measure individual taxable income directly to measure individual tax paymentsindividual tax payments

► What are the tax rates in these two methods? What are the tax rates in these two methods? ► The first method allows for household level The first method allows for household level

variation in the tax rate while the second variation in the tax rate while the second method assumes that all household income is method assumes that all household income is taxed at the same ratetaxed at the same rate


Income Tax (cont.)Income Tax (cont.)

►Method 1 is preferred as it gives better Method 1 is preferred as it gives better information on who actually pay taxesinformation on who actually pay taxes

►Be cautious: income tax data may be Be cautious: income tax data may be underestimated or not reportedunderestimated or not reported

► If possible, check both methods and If possible, check both methods and examine how different the age profiles examine how different the age profiles of income tax based on two methods of income tax based on two methods areare


Per Capita Income Tax Age Profile, Japan, 2004

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

0 10 20 30 40 50 60 70 80 90+

yen

Using household income tax and allocating to each member based on their taxable income

(earnings, self-employed income and property income)

Not using household tax data

Check: On what types of income is income tax levied in your economy?

Not using household tax data leads to overestimate taxes paid at older ages in Japan


IV. Components of IncomeIV. Components of Income

►Household surveys report income either at Household surveys report income either at the individual level or the household levelthe individual level or the household level

►Unit of analysis for NTA is at the individual Unit of analysis for NTA is at the individual level: individual income is neededlevel: individual income is needed

►Assignment of incomeAssignment of income labor income: assigned to individual memberslabor income: assigned to individual members asset income and transfer income: assigned to asset income and transfer income: assigned to

household headhousehold head


IncomeIncome AssignmentAssignmentWage or EarningsWage or Earnings IndividualIndividual

Labor’s share of self-Labor’s share of self-employed (or family employed (or family business) incomebusiness) income

Individual (household Individual (household income is distributed to income is distributed to individuals using NTA individuals using NTA method)method)

Taxes, pension, and other Taxes, pension, and other cash transfers from the cash transfers from the governmentgovernment

IndividualIndividual

Capital’s share of self-Capital’s share of self-employed incomeemployed income

Household headHousehold head

Cash transfers from other Cash transfers from other householdshouseholds

Household headHousehold head

Property incomeProperty income Household headHousehold head


Property IncomeProperty Income

►Possible components of property Possible components of property income in surveys: interest, rent and income in surveys: interest, rent and dividends; some surveys include dividends; some surveys include property income with non-labor incomeproperty income with non-labor income

►Tabulate the age profile of property Tabulate the age profile of property income (assigned to household head) income (assigned to household head) for estimatingfor estimating corporate income tax, andcorporate income tax, and operating surplus of corporations operating surplus of corporations


V. SmoothingV. Smoothing

►Visually check if the beginning and Visually check if the beginning and ending of the smoothed and ending of the smoothed and unsmoothed age profiles are differentunsmoothed age profiles are different

►Not over-smoothing: measure Not over-smoothing: measure percentage errors between smoothed percentage errors between smoothed and unsmoothed profiles; choose span and unsmoothed profiles; choose span or bandwidth that yields the least or bandwidth that yields the least percentage error between the twopercentage error between the two


Some Rules for SmoothingSome Rules for Smoothing

► Smooth and aggregate: smooth components Smooth and aggregate: smooth components of the age profiles and aggregate them up, of the age profiles and aggregate them up, i.e. smooth earnings and labor’s share of i.e. smooth earnings and labor’s share of self-employed income and add them up to self-employed income and add them up to measure the age profile of labor incomemeasure the age profile of labor income

► Do not smooth public and private education Do not smooth public and private education age profilesage profiles

► Use unsmoothed health consumption for Use unsmoothed health consumption for newborns because it is usual to have high newborns because it is usual to have high health consumption at this agehealth consumption at this age


Rules for Smoothing (cont.)Rules for Smoothing (cont.)

► Income, income taxes and familial Income, income taxes and familial transfer outflows: begin smoothing from transfer outflows: begin smoothing from the adults, excluding those younger age the adults, excluding those younger age group who do not earn income. group who do not earn income. However, problem arises when some However, problem arises when some

beginning age group may appear to have beginning age group may appear to have negative values for these variables. negative values for these variables.

This could be solved by replacing the This could be solved by replacing the negative by the unsmoothed values for the negative by the unsmoothed values for the beginning age group. beginning age group.


Per Capita Private Education Consumption, Japan, 2004

0

100,000

200,000

300,000

400,000

500,000

600,000

0 10 20 30 40 50 60 70 80 90+

ye

n unsmoothed

smoothed

Smoothed education consumption could eliminate age specific education consumption, i.e., primary school and college education expenses


Per Capita Private Health Consumption, Japan, 2004

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

0 10 20 30 40 50 60 70 80 90+

ye

n

Unsmoothed

span=0.01

span=0.1

Different spans yield different results: always check for the variations among young and old ages

Use unsmoothed health consumption for newborns


Percentage Difference between Smoothed and Unsmoothed Private Health Consumption, Japan, 2004

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

20 25 30 35 40 45 50 55 60 65 70 75 80 85

Per

cen

tag

e D

iffe

ren

ce

span=0.1

span=0.01

Lower spans cause lower percentage difference between smoothed and unsmoothed age profiles than higher spans


ConclusionsConclusions

► It is important to examine demographic It is important to examine demographic characteristics, particularly education and health, characteristics, particularly education and health, reported in the surveysreported in the surveys

► Need to cleanup data set to avoid or detect data Need to cleanup data set to avoid or detect data problem, which could cause serious mistakes while problem, which could cause serious mistakes while estimating age profiles for NTAestimating age profiles for NTA

► Avoid including non-consumption expenditure while Avoid including non-consumption expenditure while estimating consumption age profile estimating consumption age profile

► Labor income is assigned to individuals while asset Labor income is assigned to individuals while asset income and transfer income is assigned to headincome and transfer income is assigned to head

► Choose appropriate span or bandwidth that causes Choose appropriate span or bandwidth that causes the least variation between smoothed and the least variation between smoothed and unsmoothed age profilesunsmoothed age profiles

Documents

N ational T ransfer A ccounts Data Review (Hands On) Amonthep Chawla East-West Center & Nihon University Population Research Institute