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The size and direction of the observed Spanish intergenerational transfers draw upon the National Transfer Accounts Project database, a new international database that makes available estimates of market and nonmarket interage flows that are consistent with National Income and Pr...

On the effects of public and private transfers on capital accumulation: some lessons from the NTA aggregates

Journal of Population Economics, no. 4 (2013): 1409-1430

Cited: 6|Views26

Abstract

Intergenerational transfers are a very important part of our daily economic activity. These transfers, whether familial or public, may influence our economic decisions to the same extent that financial markets do. In this paper, we seek to shed some light on the effects of transfers on capital accumulation in the face of demographic aging...More

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Introduction
  • The Spanish economy faces one of the most dramatic population aging processes of all the developed countries.
  • As in most developed countries, the major concern is whether the sharp increase in this ratio will necessarily be burdensome for future workers.
  • The answer to this question depends to a great extent on the way the dependent sides of the life cycle are financed.
  • Unless the necessary incentives for accumulating capital are in place, a permanent second demographic dividend is not guaranteed
Highlights
  • The Spanish economy faces one of the most dramatic population aging processes of all the developed countries
  • We develop a general equilibrium overlapping generations model (OLG) with realistic demography (Bommier and Lee 2003) and realistic transfers drawn from the National Transfer Accounts Project (NTA) data set
  • The calibration procedure has been developed so as to simultaneously target the NTA age profiles, the main Spanish macroeconomic statistics, and the Spanish government budget in year 2000.3 This paper differs from other general equilibrium OLG models applied to the Spanish economy in that we introduce the whole set of familial and public transfers by age in a realistic fashion (Ríos-Rull 2001; Rojas 2005; DíazGiménez and Díaz-Saavedra 2009; Sanchez-Martin 2010)
  • The size and direction of the observed Spanish intergenerational transfers draw upon the NTA database, a new international database that makes available estimates of market and nonmarket interage flows that are consistent with National Income and Product Accounts (NIPA)
  • Provided the set of transfers by age in 2000 is maintained in the future, the simulation results show that net wages start decreasing in 2030
  • We show how the rapid increase in both variables is due to the pronounced baby boom and baby bust in Spain
Results
  • The authors' endogenously determined interest rate is high relative to actual data, and the slope of the consumption profile for the elderly is steeper than what the NTA LCD profile shows.
  • The payroll tax increases from 16% in 2000 to 40% in 2050 and the value added tax goes from 8.6% in 2000 to 11.4% in 2050
Conclusion
  • The authors start for a new data set to investigate how the shape and direction of intergenerational transfers might affect capital accumulation in face of population aging.
  • Capital per unit of effective labor increases because the population at working ages decreases and because workers have access to a greater stock of productive capital.
  • This is known as the second demographic dividend (Mason and Lee 2006), which turns out temporary in the simulation.
  • The baby bust generation are depleting their capital because they have received a large quantity of inter vivos transfers from their parents, relative to the amounts they will leave to their children
Tables
  • Table1: Modeled national transfer accounts by flow and economic agent
Download tables as Excel
Funding
  • Responsible editor: Alessandro Cigno This work received institutional support from the Spanish Science and Technology System (Projects No ECO2009-10003 and ECO2008-04997/ECON), the Catalan Government Science Network (Projects No SGR2009-600 and SGR2009-359 as well as from XREPP- Xarxa de referència en Economia i Política Públiques), the Fulbright Commission (reference 2007-0445), the European Science Foundation (09-ECRP-021), and the Max Planck Society
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