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Event Review

Population Europe Event: Who Pays for Demographic Change?

Public Finances and Intergenerational Transfers
Jan 27
2015
  • Source: Patrick Dick
  • Event Bxl 2015 2
    Source: Patrick Dick
Event Bxl 2015 2

National Transfer Accounts (NTA)

Alexia Fürnkranz-Prskawetz (Deputy Director, Vienna Institute of Demography, Austrian Academy of Sciences, Wittgenstein Centre for Demography and Global Human Capital) opened the event with an introduction of the AGENTA project.
The idea of this project is to understand in a systematic way, how an ageing Europe will have an impact on fiscal sustainability in the future. Therefore, the project uses a methodology called National Transfer Accounts (NTA), which moved one step ahead when ageing was included as a factor. Fürnkranz-Prskawetz called it “the next chapter in the national account methodology”. The goal of AGENTA is to build up national transfer accounts for all European countries and to explain the past and forecast the future of taxes and public transfers and services in light of demographic change in the European Union.

Who pays for the life-cycle deficit and surplus?

Robert Gál (Senior Researcher, Hungarian Demographic Research Institute, Budapest) presented potential applications of NTA and gave insights on the measurement of intergenerational economic flows. His figures illustrate the per capita age profiles of consumption, labour income and the resulting life-cycle deficit. “We only produce in the middle of our lives, but we also have to consume when we are children and at an elderly age.“ Gál said. When comparing Europe to the rest of the world , interestingly, the consumption curves are quite uniform. “We might believe that Europe is different, but actually the life-cycle deficit is rather uniform.”

What differs is the way life cycles are financed. Whereas in Europe they are mainly absorbed by public transfers, the rest of the world focuses on private transfers (mostly intra-household transfers) and also on asset-based revenues, particularly in older ages.

To show this contrast, he named Sweden and Hungary as good examples because they are the biggest welfare states, compared to Taiwan, where mostly private transfers are carried out, and the US, where asset-based revenues have an exceptional importance in financing old age.
“State intervention changed the system of intergenerational resource flows in Europe”, Gál said. “Private transfers mostly disappeared in old age, whereas consumption is increasing among the oldest.” He also showed that, contrary to widely held beliefs, modern societies tend to spend more on children than on the elderly. The elderly do receive significantly more public transfers per capita than children, but much of intergenerational reallocations, especially in childhood, are invisible in the current version of National Accounts. “Children cost parents, the elderly cost taxpayers”, Gál summarised.

Transfers between generations and gender

Hippolyte d’Albis (Professor of Economics, Pantheon-Sorbonne University and Paris School of Economics / Institut National d’Etudes Démographiques, Paris) stressed the importance of also considering private and non-monetary transfers between generations in times when “the ageing issue is mostly discussed from the perspective of public deficits.” According to d’Albis, sustainability of the budget is not the only issue. “With the NTA dataset we are able to address other issues.” He named the examples of how to finance the consumption of dependents, namely retirees, but also of the Young.

Another issue d’Albis pointed out is the differences between labour income of men and women. He chose France as an example, where the labour income of men is still higher but it is decreasing. In contrast, when looking at home production, women are still working much more at home than men. “The share of men working at home is increasing, but it is still very low.”

Again, in reference to France, d’Albis generally pointed out the increasing importance of female labour participation when discussing  population ageing. If the share of female labour participation is getting bigger, the labour income is increasing and, “the ageing problem is not a big problem anymore, as long as women are working”, he said.

The case of Sweden

In his presentation, Tommy Bengtsson (Professor of Demography and Economic History, Centre for Economic Demography, School of Economics and Management, Lund University) focused on Sweden in terms of population ageing and the welfare state. He chose Sweden because “it is a well-performing society according to most indicators, for example life expectancy and happiness.” But has Sweden solved the problems arising from population ageing?

According to Bengtsson, the first stage of population ageing  was caused by falling fertility. Due to this, the dependency ratio declined despite a growing share of elderly, which stimulated the economy. The second step of population ageing is caused by a decline in mortality among the elderly. Consequently, the dependency ratio will increase, as well as costs for health care. “We need to analyse consumption and production by age to find out how big the deficit is”, Bengtsson said.

He concluded that Sweden is facing a threat to the welfare state. While looking for solutions, he explained that higher fertility rates can be a trigger, but not much and only in the long run. The same applies to immigration. Reducing consumption would also be possible, though not a popular one. He therefore called for more possibilities to postpone retirement and easier access to labour for immigrants. “It should be possible to work more at a higher age. We should also make it faster for immigrants to find work”, Bengtsson said.

If Sweden, a well-performing society with modest future population ageing is facing problem, what problems will then other countries with much faster population ageing face?

PANEL DISCUSSION

The following Panel Discussion shed light on the issue of public finances and international transfers from a more policy-driven perspective.

Jakob von Weizsäcker (Member of the European Parliament, Brussels ) said that politics should focus on potentially lost generations. “Something fundamental has changed”, said  von Weizsäcker, “Future generations may be so little better off. We’re moving from retribution to exploiting. And that has a lot to do with growth prospects.”

Johanna Nyman (President of the European Youth Forum) advocated for more inclusion of the young when creating policies. “The key issue is participation of all groups”, she said. Politics should also avoid that labour market policies are hitting the younger generation even more. “We are the most mobile and active generation. But it’s about finding a job!” According to Nyman, 50% of young people do internships and 60% of these are unpaid. “Young people these days feel insecure”, she said. “They don’t feel safe enough to form a family, and of course they are also not contributing to any transfers.”

For Maciej Kucharczyk (AGE Platform Europe, Brussels) the debate about our ageing societies is being held in a much too catastrophic way. “Living longer is still a privilege”, he said. “The whole debate should be about collected responsibility.” Also, living longer is not only a consequence of extended life. The ageing society is also a result of extremely low fertility rates. He named France as a good example where there are many working mothers and a stabile fertility rate. “One major starting point to change something”, Kucharczyk added, “is to have evidence-based information.”

Considering this, Edward Palmer (Senior Adviser and Research Director, Swedish Social Insurance Agency, Stockholm) added that projections of mortality and fertility are not easy to do: “We need better data”, he concluded. He also focused on the topics of education, saying that: “We have too many people with too little education.” Another factor for him is family policies: The best old age policy starts with having a good family policy in a country.

Veli Laine (Policy Analyst, European Commission, DG Economic and Financial Affairs, Brussels) pointed out the growing contribution from older to younger. “Actually older people spend their extra money mainly on their children and grandchildren. We should not forget that when we talk about who pays for demographic change.” He also stressed the importance of all the related policies: “Family, education, health and also labour policies do play a role.”

In his conclusion, Kirk Scott (Professor of Economic History, Centre for Economic Demography, School of Economics and Management, Lund University) mentioned that population ageing is not only an issue just for Europe or the developed countries.

“The time population ageing is taking  is compressed, reaction times are getting shorter”, he said and concluded: “Frictions that we’ve experienced are only getting worse in other countries.” Scott also mentioned that “the discussion is often based on who in the government is going to finance population ageing, but population ageing doesn’t only impact the governments, but also the families.”

“We like to assume that we know something about the future age structure, but it’s more difficult”, Scott concluded and he again stressed the importance of the AGENTA project for explaining and projecting trends in public finances. “Employing and refining NTA methodology will allow us to better understand the mechanisms and dynamics behind individual decisions and how they combine to produce aggregate patterns”, Scott stated.