“Transferencias intergeneracionales y envejecimiento en España, un análisis desde 1970 hasta la actualidad”

Introduction

This project aims to carry out an analysis of the effects of ageing on the economy in Spain. For this purpose, the period from 1970 to the present will be studied and, in view of the results, simulations will be carried out on the possible future evolution. The methodology to be used are the so-called National Transfer Accounts (NTAs). This is a methodology developed since the beginning of the 2000's, in an international project led by the American Universities of Berkeley and Hawaii. Currently, more than forty countries from all over the world (including Spain) participate in this project. The NTA estimation method has been approved and published in a manual by the United Nations (Population Division).

The NTA Methodology

NTAs consist of estimating, for each moment of time and for a given economy (for the moment the analysis is carried out by countries), all the resource flows that take place between the different age groups of the generations that live together. In strictly economic terms, the life cycle of people can be divided, in general terms, into three main stages that we will call: childhood-early youth, active age and retirement age. During working age, individuals have the capacity to work that allows them to generate the resources necessary to meet their consumption needs, while in childhood and retirement, they lack those resources. Thus, it is essential that there be some kind of mechanism that allows, at all times, intergenerational transfers necessary for children and the elderly to consume and meet their needs.

There are basically three intergenerational redistribution mechanisms. The first is the family itself, where, for example, parents act by caring for and satisfying the needs of their children, or even grandparents. Second, the public sector also makes intergenerational transfers, as most social expenditure programmes target some ages while being financed with resources from others. For example, pensions and health care mainly benefit the elderly, education benefits children, and in any case they are financed by taxes that are mainly paid by working people. Finally, intergenerational transfers could also take place through the market: older people could have saved during their active life and recouped the investment during their old age. In the case of children, a similar reasoning would imply that they would have to get into debt at birth and repay the credit once they had entered the labour market. However, while in the case of the elderly there are indeed temporary income reallocations (to a greater or lesser degree depending on the country), the same is not true in the case of children, where the family plays the fundamental role.

The estimation procedure for NTAs is complex and requires a significant workload in terms of searching for and processing statistical data at the micro level. NTAs provide not only consumption and labour income profiles, but also all the variables into which they can be broken down, as well as the different mechanisms for financing the consumption needs of different ages. Thus, profiles of private transfers (both family and intra-family) and public transfers (all taxes, social contributions and all public expenditures) are constructed. For their part, asset reallocations, in the absence of appropriate statistical information to be able to estimate them directly, are obtained as a balance, using the basic NTA equation. All profiles are obtained per capita and at aggregate level (by multiplying each profile by the population in each age group). The aggregates must match those provided by each country's National Accounts, so that the NTAs are consistent with the National Accounts.

Graph 1. Profiles of labour income (YL) and consumption (C) per capita by age in Spain (2000)

NTAs provide invaluable information that allows us to observe how intergenerational transfers occur in a given period. Thus, first of all, there is a profile by age of consumption and labour income. The difference between the two produces the so-called Life Cycle Deficit or LCD. In Graph 1 we represent those profiles for Spain estimated for the year 2000. As can be seen, while consumption is fairly regular throughout the life cycle, the same is not true of labour income, which is clearly concentrated in the central stage. This leads to a life cycle surplus (labour income is higher than consumption) between the ages of 26 and 58. On the contrary, at younger and older ages, a life cycle deficit occurs, i.e. individuals need transfers in order to meet their consumption needs. These transfers will have to take place through one of the three mechanisms indicated above

Graph 2 shows a comparison of labour income and consumption profiles for different NTA project member countries classified by geographical areas. Although the shape of the NTA profiles presents, in general, very similar trends between countries, some interesting differences can be seen. For example, the Nordic countries (Sweden, Finland), Germany and the USA have a consumption profile that grows noticeably in later life. This is mainly explained by the public consumption that grows considerably in these age groups (in programmes such as care for dependency). However, in other European countries such as Austria, France, Italy or Spain, this phenomenon is not observed. With regard to labour income, it can be seen that in the countries with the greatest economic development, this is concentrated mainly in the central ages. In countries such as Turkey, India, Colombia or African countries, a greater importance of labour income at very young ages can be appreciated.

Graph 2. Profiles by consumption age and per capita labour income in different NTA countries

The life cycle deficit that people have to face irremediably during their childhood and once they lose the capacity to work, could be financed with the three intergenerational transfer mechanisms mentioned above: family transfers, public transfers or reallocations through the markets themselves. The importance of these three mechanisms is different in each country and, we suspect, has undergone significant variations throughout history.

Graph 3 shows the relative importance of labour income (YL), private transfers (TF), public transfers (TG) and temporary income reallocations (ABR) in financing the consumption of young and old in three countries NTA, USA, Costa Rica and Germany. First, it can be seen that for young people, the main source of financing for their consumption is private transfers (TF), basically from their families, followed by public transfers, mainly education (although the importance of these differs markedly between countries). On the other hand, for the over-65s their main source of financing comes from public transfers (pensions, health), followed by intertemporal income allocations (desahorro). It is worth pointing out the difference between the USA and Germany (a difference that also exists with the rest of European countries) in terms of labour income. For older Americans, labour income finances around 24% of their consumption, while in Germany it drops to just 3%. It is only a consequence of the greater labour participation of the elderly in the North American economy, whose average retirement age is higher than that of Europe.

Graph 3. Mechanisms for financing the consumption of young (0-24 years) and older (65+) people

If we focus on the importance of public transfers, i.e. on the role of the welfare state, we find interesting results. In Graph 4 we have represented the percentage of public transfers received by young people (0-24 years old) and older people (65 and over) in different NTA countries, in relation to their own consumption. It is worth noting the differences between countries such as the United Kingdom or Sweden, for example. In the United Kingdom, older people receive barely 45% of their total consumption in public transfers, while in the case of children the proportion is reduced to 20%. In the case of Sweden, on the other hand, older people receive public transfers equivalent to 100% of their consumption, and children around 40%. There are therefore two interesting features. Firstly, even if we compare countries with consolidated welfare states, there are important differences in their level of protection. Secondly, and no less interesting, there is a clear bias in favour of the elderly in all the countries analysed. Despite the fact that these two stages are equally dependent in economic terms, the welfare state has developed towards the protection of the elderly, leaving the protection of children basically in the hands of the families.

Graph 4. Public transfers received by young (0-24) and older (65%) in NTA countries, as a percentage of total consumption of the same age group

Graph 5 presents a comparative graphical representation among NTA countries of the importance of the three life cycle deficit financing mechanisms for the over-65s. As can be seen, the main ones are public transfers and intertemporal redistributions of assets, while the importance of family transfers in this age group is much lower.

Graph 5. Representation of life cycle deficit financing mechanisms for over-65s in NTA countries

Objective of the project

The aim of this project is to analyse the evolution of the welfare state and its interaction with intergenerational transfers in Spain from 1970 to the present day. The aim is to study the effects of the age composition of the population and to draw lessons on the economic effects of ageing. It is difficult to find research works in which the development of the welfare state is studied from a historical perspective related to demographic evolution. This will be the main contribution of this project.

Since we already have NTA estimates for Spain for the years 2000 and 2012, it will be necessary to build those for the period 1970-2000. The methodology to be followed will be the NTA standard, using the household budget surveys available for 1970, 1980 and 1990, as well as other data sources from public bodies and the National Accounts.

Main bibliographical references

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