Pro-elderly welfare states of pro-child societies
The system of National Accounts (NA) sheds light on economic activities, such as production, consumption and the generation and allocation of income among institutions, such as households, government and the corporate sector. NA is such a well-established and powerful tool that we frequently forget about its limits. Standard NA covers economic activities (flows) and includes some information on wealth (stocks). However, it excludes most of the household (unpaid household labor) and confines it in a satellite account; it does not contain human capital and it is thin on physical capital, most notably natural resources.
Among numerous current efforts the school of National Transfer Accounts (NTA) established by Ronald Lee and Andrew Mason (see www.ntaccounts.org and http://www.agenta-project.eu/en/index.htm) aims at extending the reach of national accounting. NTA is based on the recognition that the main entries of NA’s Income Account have characteristic age-profiles. Labor income is minimal or zero in childhood and old age; the consumption curve, by contrast, is more uniform over the life cycle; public transfers are financed mostly by people in their active age and consumed either uniformly or mostly by people in their early or old age. Resources of the household are also reallocated from the active aged to children and the elderly. In short, NTA redefines income streams flowing among institutions to flows among generations. In a similar way a recent extension, National Time Transfer Accounts, or NTTA in short, introduces age into the household satellite account by drawing age profiles of the production and consumption of unpaid household labor.
The new accounting system helps answering a number of macroeconomic questions about the effect of changing age composition of society on savings, consumption, growth and allocation of income by birth year. Another important application is the economics of the welfare state. If taxes and transfers are reallocations across age groups rather than across income classes and if government is but one of the channels of such inter-age reallocations many of the well-established beliefs and assumptions about the welfare state are to be reexamined.
The research I did while enjoying the hospitality of IER Hitotsubashi is one such effort to question a deeply rooted belief. In cooperation with Pieter Vanhuysse and Lili Vargha we showed that the widely held view of the ‘grey power’, modern day ‘gerontocracy’ and even ‘coming generational storm’ that is the elderly taking advantage of children and the working aged proves to be an optical illusion if the new tools of NTA and NTTA are mobilized. Children cost more than the elderly but children cost their parents whereas the elderly cost society.