Changes in Intergenerational transfers in the United States from 1961 to 2016

From the Project Summary for Project 4 we quote: “This project is based on data from the United States, and its main objective is to complete the construction of the National Transfer Accounts for this country from 1961 to 2016, and compare them with those obtained for Spain and Portugal.”

We have made considerable progress, as described below.

Objective 1. We have completed construction of the age profiles of labor income, consumption and public consumption for 1961 and from 1981 through 2015, from which we have derived the age profile of the life cycle deficit. We have not compared these to the corresponding age profiles from Spain and Portugal, but in other respects the Milestones for Objective 1 have been almost entirely met. We will be estimating the age profiles for years after 2015 soon. 

Objective 2. We have completed construction of age profiles of public transfers, private transfers, and private financial assets for 1961 and from 1981 through 2015. The distribution of financial assets is obtained from the data on asset income by age, assuming an average rate of return of 5% on assets which is the average over the past three decades. 

Objective 3 is to carry out the comparative analysis of changes in Spain, Portugal and the US. This has not yet been done. 

Some illustrative results are presented below. These are available for each year 1981-2015, but are shown only for 1981, 1998, and 2015 to avoid clutter. They are available in nominal units, or in fixed dollars, or as shown here, expressed relative to average labor income at ages 30 to 49.

Figure 1. 

Labor income and Consumption

B. Private transfers and public transfers

Figure 1A shows a striking increase in labor income at older ages since 1998, a striking increase in consumption across the life cycle relative to labor income, and a striking increase in the relative consumption by the elderly relative to younger adult ages. Figure 1B shows fewer big changes, but one that does stand out is the increase in public transfers to children ages 5 to 18, reflecting increased expenditures on public education per child. 

In Figure 2A we see major increases in public consumption at young and old ages, but we need to investigate why we don’t see a corresponding increase in public transfers to the elderly in Figure 1B. We also see a large increase in private consumption after age 40, and an increasing gradient of the private consumption curve. Figure 2B shows the increasing life cycle deficit of children and of the elderly, and a rise in the break-even age for young adults with no change in the break-even age for the elderly which remains at 60. Asset income in Figure 2B shows an interesting pattern of changes, with an increase in asset income from ages 25 to 55, and a decrease thereafter. This decrease at older ages may reflect the decline in real interest rates that many economists have noted over recent decades. 

Figure 2. 

A. Private and Public Consumption

B. Asset Income and Life Cycle Deficit

Much more detailed information is available for many of these items, for example the kind of public transfer (health, pension, education, etc.) or private transfer (intra or inter household), self-employment income versus wage and salary income, and so on.