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FP7

AGENTA Report Summary

Project ID: 613247
Funded under: FP7-SSH
Country: Austria

Periodic Report Summary 2 - AGENTA (Ageing Europe: An application of National Transfer Accounts (NTA) for explaining and projecting trends in public finances)

Project Context and Objectives:
The European population is aging at a rapid rate. Within the next few decades in most countries, the increase in the share of the retired elderly population will require accompanying changes in the design of public transfer programs. While some countries have undertaken reforms of their welfare state systems, the need for further reforms is urgent.

The AGENTA project aims to explain the role of demography in the development of public transfers in the past and to forecast how these may develop in the future in the light of demographic change. Additionally, the output of the project will be strongly policy-oriented, offering an AGENDA for preparing the public transfer system for long-life societies.

A guiding principle of AGENTA is the consideration of public transfers as well as private transfers within families. This principle is derived from the conviction that an adequate understanding of public transfers, their projection and the derivation of evidence-based options for policy reforms has to take into account the whole system of inter-generational transfers. An important component of the AGENTA project focuses therefore on the analysis of the private system of intergenerational social transfers.

A special emphasis of AGENTA is on the measurement and the analysis of age-specific economic behaviour and its changes as populations are ageing. The links between the different components of the public budget are investigated, since these will considerably influence age-specific economic behaviour. Current investments in the human capital of children, for example, influence labour force participation, risk behaviour and shape the need for services and the size of the public budget in the future. Moreover, age-specific economic behaviour and the organization of intergenerational transfers differ considerable between individuals and countries. AGENTA aims at understanding these differences and analysing how these differences affect the ageing of the population and its consequences.

One of the most important contributions of the AGENTA project is the generation of National Transfer Accounts (NTA) for all EU Member States, based on the initial concept developed by professors Ronald Lee and Andrew Mason. NTAs measure how much income each age group generates through work and through the ownership of capital, how income is redistributed across age groups through public and private transfers and how each age group uses its disposable resources for consumption and saving. NTA therefore shows the channels by which dependent age groups draw on resources generated by the working age population. The extent of these various transfers, together with the demographic patterns and trends, will ultimately determine the impact of transfers on public finances. Our analysis goes beyond standard NTA methodology by also disaggregating the data by socioeconomic characteristics such as gender, education and country of birth. For a selected set of countries (based on data availability), we have set up historical NTA data. To also account for unpaid household labour we have set up National Time Transfer Accounts (NTTA).
Project Results:
National Transfer Accounts
The generation of NTA for all EU-countries (EU-NTA), is one of the central aims of the AGENTA project. We have created a NTA data set by gender for the year 2010 for all EU countries except Croatia and Malta, for which we lack required data. NTA data by socioeconomic characteristics are available for several countries: by educational level (20 EU countries) and by country of birth (11 EU countries). For 8 EU countries we generated NTA data sets for several years. Age-specific production, consumption and transfers in form of goods and services produced through unpaid work are captured in National Time Transfer Accounts (NTTA), which have been created for 14 countries. NTA and NTTA data are an extensive source of information and serve as input in other parts of the AGENTA project.

An important application of NTA is the generation of summary measures and indicators of the economic life cycle and the consequences of population ageing. We discussed and calculated a range of NTA based indicators, each highlighting a different aspect of the economy. The NTA based indicators emphasize that the economic consequences of ageing are largely determined by the age-specific employment, consumption and saving behaviour.

Understanding Economic Behaviour
The increase in average retirement age since the mid-1990s is widely believed to be a consequence of governments’ interventions in the pension system. We found that it might not fully be the case. Changes in composition of the labour force, in particular the increasing share of high educated, added to the increase on retirement age, more so for women than men in Sweden. In addition, impaired health does not prevent people from working longer, as the average retirement age of those unhealthy has been increasing to the same extent as that of healthy workers during the recent decade in Sweden. However, based on SHARE data and Spanish administrative data we found a negative relationship between education and the retirement rate. This implies that there are considerable unused capacities of older workers with high levels of education.

We introduced a new approach to measuring intergenerational redistribution called the Generational Wealth Accounts. This approach uses the NTA framework to generate forward-looking measures of the relative and absolute importance of the asset ownership, public and private transfers to different generations. This analysis was complemented with the investigation of the impact of demography and transfers on savings.

Explaining the past and projecting the future
One of the aims of the AGENTA project is to simulate the past and project future trends in public finances as they are related to demographic changes. Based on a computable general equilibrium (CGE) model, we measured the contribution of demography to economic growth along the period 1870-2000. We have found that more than 20% of the observed increase in per capita income growth is due to the demographic transition. We have also found that the increase in capital per worker observed since the end of World War II will not continue during the 21st century due to the crowding-out effect caused by the public pension systems.

The most important determinant of the NTA age-profiles are the age-specific employment rates. We projected age-specific employment in the future, taking into account the educational composition of the working age population and the higher labor force participation rates among women. We used this data to develop and calculate a new sustainability indicator of the public transfer system, the Human Capital Investment Gap (HKIG). Based on the HKIG we conclude that the levels of public old-age benefits observed in 2010 are appropriate for the parents of the baby-boomers, but hardly sustainable for younger generations with low fertility and increasing life expectancy. Transfer systems across Europe require a re-adjustment to be in-line with the low investments into young generations.

Potential Impact:
One of the most important output of the NTA project are clearly the National Transfer Accounts data sets by gender for the EU countries, which are based on publicly available harmonized data sources and calculated using exactly the same methodology. These data can be explored and downloaded through an online tool. The data illustrate and compare age-specific economic quantities across age-groups, gender and countries, and can be used as input in further scientific research. Several popular and widely used indicators can be calculated using NTA data, in particular economic dependency ratios. There is interest in the data not only from the scientific community. We expect that the data will be used by policy makers, organizations related to the government as well as the civil society.
Our NTA data clearly indicate that the shape of the economic life course is quite different across countries, as it depends on the country specific economic, institutional and demographic situation.

Introducing paid and unpaid work by gender into the NTA framework provides a more complete picture of intergenerational transfers. There are huge cross-country differences in the role of women in the production process and their contribution to intergenerational transfers. We identified it as problematic that the public system of intergenerational transfers largely ignores the private contributions of women. The investments into the child generation, which are mostly private, determine the number and capacity of contributors to the public system. These investments into children are associated with considerable costs for the parents, in form of reduced consumption, reduced leisure and lower labour income. However, individual pension benefits are based on one’s own contributions to the public system. As a consequence, households and individuals that invest into children are likely to end up with lower public benefits. We expect that our own research and the research based on our data can make a substantial contribution to the discussion of sustainability and fairness of the public transfer systems across genders.

To gain a better understanding of life course events on economic activity in old age we studied
micro level data. Evidence from Swedish micro-data shows that younger cohorts of men and women are remaining in employment longer compared to older cohorts. Our results also show that retirement
age varies by educational level, with those with higher education retiring at higher ages. However, based on micro-data from SHARE and Spanish administrative data we find exactly the opposite result.

To assess the impact of population ageing in the next decades, we will project future NTA profiles of private and public finances using the built up computable general equilibrium (CGE) model. The simulation results will provide information about how individuals will finance their consumption at different ages, through private and public transfers, when different reform scenarios are implemented. We expect that our results make a substantial contribution to the debate about the sustainability of the welfare state system.
List of Websites:
www.agenta-project.eu

Contact

Inga Freund, (Administration)
Tel.: +43 1 31336 7718
E-mail
Record Number: 199563 / Last updated on: 2017-06-21
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