Major Research Projects

Macroeconomic Demography of Intergenerational Transfers

Principal Investigators: Ronald D. Lee (Department of Demography, UC Berkeley)

The number of countries in this comparative international project is now at 30, with a likelihood that additional country teams will join in the coming grant year. Various training programs have been held for the new country members.
The project has attracted interest and funding support from the United Nations (Population Division and Fund for Population Activities), the World Bank, the European Union, and the government of Japan (through Nihon University Population Research Institute), and the International Development Research Center (a Canadian Foundation). This funding goes through PIs who are regional directors for Europe, Africa, Latin America and Asia, rather than through the PI on this NIA grant, Lee. Many countries have their own national funding.
There have been many workshops and conferences in the past year, at the national, regional, and global level, often with policy makers attending.
In most Third World countries, middle income or poor, consumption is quite flat across adult ages, whereas in most rich industrial nations, consumption rises strongly with age, particularly in old age, reflecting rising public expenditures on health care.
In poor countries, the direction of net transfers is strongly downwards from older people to younger people. In many but not all rich countries, the direction of net transfers has shifted to upwards, from younger to older people. Private transfers are uniformly strongly downwards, but public transfers are often strongly upwards.
There is great diversity across countries in the way that the elderly finance their old age consumption, through public or private transfers, asset income, or their own labor income. The main substitution appears to be between asset income on the one hand and the total of transfers (public and private) on the other, with the role of labor income less variable.
Except in East Asia, the average elderly in most countries make net private transfers to others rather than receiving net transfer support from their adult children.
In the US, elders fund their consumption largely from asset income but also from Social Security, while making net transfers to younger people.
In the US, in 1960 cross-sectional per capita consumption declined at older ages. By 1981 it increased substantially with age, due largely to rising public
expenditure on health care for the elderly (Medicare and Medicaid for long term care). By 2003 this increase with age had become very pronounced, again due largely to rising Medicare and Medicaid expenditures.
There is a moderately strong negative relationship between national fertility rates and combined public and private spending on education and health care per child from birth to young adulthood. A stylized simulation suggests that as populations age due to low fertility, the increased old age dependency ratios and pension costs may be substantially offset by increased productivity of the smaller labor force, because this increased investment in human capital raises the productivity of labor.