an overview of national transfer accounts andrew mason january 2005

An Overview of National Transfer Accounts

Andrew Mason

January 2005

Objective

Reach a consensus about the National Transfer Account (NTA) framework– Concepts– Language– Not implementation

Why Reallocation Systems are Important: the Life Cycle Deficit

0

100000

200000

300000

400000

500000

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

Age

Mean C

onsum

ption a

nd

Pro

duction

Consumption

Labor Production

Surplus

Deficits

Table 1. A Classification of NTA Reallocations.

Capital Reallocations

Property and Credit

Reallocations Transfers

Public

Private

Source: Adapted from Lee 1994.

Classification of Reallocations

• Governing institution– Public– Private

• Economic form– Investment– Exchange– Transfers

Governing Institution

• Public: reallocations that are social mandates embodied in law and regulation and implemented by local, regional, and national governments.

• Private: reallocations that are governed by voluntary contracts, social conventions, etc. Mediated by households, families, firms, and non-profit institutions serving households.

Economic Form: Investment

• Increase in total future consumption by reducing current consumption;

• Leads to a change in total reproducible material wealth;

• Reallocations from young to old only: capital is accumulated when young and disposed of when old.

Economic Form: Exchange

• Trade of economic resource in one period in return for compensation in one or more future periods;

• No net increase in aggregate wealth: accumulation by one age group balanced by decline in wealth of another age group

Economic Form: Exchange

• Consumer Credit– One group reduces current consumption and another

group increases current consumption– Reallocations in either direction are possible

(required)

• Exchange of land and other non-reproducible assets– Buy land from old person when young; sell to young

person when old.– Reallocations of consumption from young to old only.

Economic Form: Transfers

• Reallocations which involve no quid pro quo;

• Transfers can flow in either direction– From older (parents and taxpayers) to

younger (children);– From younger (taxpayers and adult children)

to older (elderly/parents).

Table 1. A Classification of NTA Reallocations.

Capital Reallocations

Property and Credit

Reallocations Transfers

Public

Public infrastructureState owned

enterprise

Public debtStudent loan programs

Public educationPublic health careUnfunded pension

plans

Private

HousingConsumer durablesFactories

FarmsInventories

Consumer creditInsurance

Land transactions

Familial support of children and parentsBequestsCharitable contributions

Source: Adapted from Lee 1994.

NTA Institutions II

• All transactions are to and from individuals (residents);

• All wealth is held by individuals;

• Social and economic institutions are intermediaries only.

Households vs. Individuals

• Consumption, labor income, public transfers, and intra-household private transfers are allocated to individuals;

• Inter-household private transfers are between household heads;

• Assets are held by the household head; saving is by household heads; capital transfers are between household heads.

NTA Consists of Two Accounts

• Lifecycle Account – measures all inter-age flows;

• Wealth Account – measures the value of the wealth associated with each flow.

Lifecycle Account: NTA Accounting Identity

Lifecycle Deficit =

Lifecycle Reallocations =

Capital Reallocations +

Land and Credit Reallocations +

Net Transfers, Public and Private

lC y

rK I

MrM I

g f

Table 1. Lifecycle Account, broad age groups.

Total 0-14 15-29 30-44 45-59 60+

Lifecycle Deficit 0.22 18.49 -1.52 -45.29 -33.79 62.32

Consumption 228.41 18.52 30.62 40.86 44.93 93.48

Less: Labor Income 228.19 0.02 32.14 86.16 78.72 31.16

Lifecycle Reallocations 0.22 18.49 -1.52 -45.29 -33.79 62.32

Capital Reallocations 0.22 0.00 -3.85 -15.21 -9.90 29.18

Property & Credit Reallocations

0.00 0.00 -0.51 -2.10 -2.33 4.94

Net Transfers 0.00 18.49 2.85 -27.98 -21.56 28.20

Public 0.00 1.85 -5.50 -18.02 -16.47 38.14

Familial 0.00 16.65 8.35 -9.96 -5.10 -9.94

Upper panel measures the difference between production and consumption over the lifecycle. All values are totals for the age group, although means can be readily calculated.


Total 0-14 15-29 30-44 45-59 60+


Consumption 228.41 18.52 30.62 40.86 44.93 93.48





0.00 0.00 -0.51 -2.10 -2.33 4.94

Net Transfers 0.00 18.49 2.85 -27.98 -21.56 28.20

Public 0.00 1.85 -5.50 -18.02 -16.47 38.14

Familial 0.00 16.65 8.35 -9.96 -5.10 -9.94

Lower panel measures the reallocation systems employed to satisfy the lifecycle deficits and surpluses at each age.


Total 0-14 15-29 30-44 45-59 60+


Consumption 228.41 18.52 30.62 40.86 44.93 93.48





0.00 0.00 -0.51 -2.10 -2.33 4.94

Net Transfers 0.00 18.49 2.85 -27.98 -21.56 28.20

Public 0.00 1.85 -5.50 -18.02 -16.47 38.14

Familial 0.00 16.65 8.35 -9.96 -5.10 -9.94

Assets reallocations are equal to capital income (profits, interest income and other returns to accumulated capital) less investment. Age groups with negative values are investing in excess of their capital income.


Total 0-14 15-29 30-44 45-59 60+


Consumption 228.41 18.52 30.62 40.86 44.93 93.48





0.00 0.00 -0.51 -2.10 -2.33 4.94

Net Transfers 0.00 18.49 2.85 -27.98 -21.56 28.20

Public 0.00 1.85 -5.50 -18.02 -16.47 38.14

Familial 0.00 16.65 8.35 -9.96 -5.10 -9.94

Property & credit reallocations are equal to property income (rent plus interest) less the net increase in property and credit balances. Age groups with negative values are accumulating assets in excess of their property income.


Total 0-14 15-29 30-44 45-59 60+


Consumption 228.41 18.52 30.62 40.86 44.93 93.48





0.00 0.00 -0.51 -2.10 -2.33 4.94

Net Transfers 0.00 18.49 2.85 -27.98 -21.56 28.20

Public 0.00 1.85 -5.50 -18.02 -16.47 38.14

Familial 0.00 16.65 8.35 -9.96 -5.10 -9.94

Net transfers consist of public transfers and private or familial transfers. Positive values imply that inflows exceed outflows.

Model NTA Account based on

• Life expectancy at birth: 87.6• Population growth rate: -1% pa• Population 65+: 36%• Public pension program with a 40% replacement

rate; modest familial support • Consumption by children:

– 10% public– 90% familial

• Exogenous labor productivity growth: 1.5%• Interest rate: 0.5%

Lifecycle Wealth

• Lifecycle wealth is the present value of the net flows or reallocations from the lifecycle account

• Wealth (W(a,t) = Capital (K(a,t))

+ Land and Credit (M(a,t))

+ Transfer Wealth (T(a,t))

Lifecycle Wealth

• Markets for capital, land, and credit establish current prices and values

• Transfer wealth is not traded; thus

0

( , ) (1 ) ( , )a

x

x

T a t r a x t x

Lifecycle Flows and Wealth

• K and M change over time due to investment and changes in capital prices. For capital:

( 1, 1)

( 1) ( )( , ) ( , ) ( , )

( )

K K

K

K a t

P t P tK a t I a t K a t

P t

Transfer Wealth and Transfers

• In the absence of revaluations, transfer wealth evolves as:

( 1, 1) ( , ) ( , )

( , ) ( , ) ( , ).

T

T

T a t T a t I a t

I a t rT a t a t

Transfer Wealth and Transfers

• Transfer wealth will also be subject to revaluations due to: – Changes in interest rates– Changes in public and private transfer policy

• A Wealth Revaluation Account records revaluations in transfer wealth and changes in asset prices

The End

an overview of national transfer accounts andrew mason january 2005

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