Concepció Patxot Universitat de Barcelona Elisenda Rentería Universitat de Barcelona Guadalupe Souto Universitat Autònoma de Barcelona

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1 Evolution of economic transfers between age groups before the crisis in Spain ( ): who were the losers and winners from the pre-crisis euphoria? Concepció Patxot Universitat de Barcelona Elisenda Rentería Universitat de Barcelona Guadalupe Souto Universitat Autònoma de Barcelona Abstract There is a general perception that before the crisis there was a waste of money by the government and the families in Spain. It is important, then, to analyze if this misspending was made equally among age groups and to what extent it was due to the government or to families. This will have very different implications on the restructuration of the transfers system, which seems to be one of the main current concerns of governments. We propose here to analyze the evolution of lifecycle deficit and their related age reallocations profiles (transfers and asset-based) from 2000 to 2008 for Spain using National Transfers Accounts methodology. The aggregates show that the lifecycle deficit increased a 52%, meaning that consumption increased more rapidly than labor income. This implies that the necessity to finance consumption through age reallocations increased highly in few years. This tendency has been accompanied by an increase of the public share in the total consumption of the economy, growing from 25% in 2000 to 28% in This work aims to shed some light on how these changes have occurred by age, showing which age groups have benefit more or can be more affected by changes in the transfer system due to the crisis. Key words: National Transfers Accounts, Ageing, Welfare State Introduction While population aging challenged the welfare state sustainability in Spain by increasing retirement pension transfers and health costs, the actual economic crisis is in fact threatening its survival. However, on the contrary as it would be expected, is not the elderly the most jeopardized by the changes brought with the new austerity measures, but the children (Antuofermo & Di Meglio, 2012). This is in part due to the configuration of the transfer system in Spain and its distribution between governments and families. As the latter have been hit greatly by the crisis, those that rely more on private transfers than on public transfers, like children, are more vulnerable. The analysis of the evolution of the transfer system by age groups before the crisis can help to understand which population groups will be more affected by the changes brought by the reforms on social transfers policies. About one decade before the crisis Spain experienced an economic euphoria that boost earnings, credits, and therefore, expenditures (public and private). The private debt level of Spain as a percentage of GDP doubled from 2000 to 2008 (Eurostat, 2012). With the crisis and the consequent reduction in labor earnings due to high rates of unemployment, families become really vulnerable and more dependent from social transfers of the government. However, the government is also reducing their spending and is carrying out drastic measures to reduce their social transfers.

2 This situation is more worrying as in demographic terms, from 1982 to 2013, Spain enjoyed a positive demographic dividend due to the working period of the baby boom generation that was expanded thanks to an immigration boom that slowed the aging process (Patxot et al., 2011). This meant a growing labor force that Spain could have taken advantage from to apply reforms to create a more sustainable system of social transfers. However, with the arrival of the crisis, this has turned out to be a drawback, as the working age population has crashed into unemployment. Furthermore, as the demographic dividend is ending, population aging will start to be a real concern with the rise of economic dependency rates. It is extremely important, then, to understand how the age reallocation system is designed to recognize the contribution of public, private transfers, and other financial or asset-based reallocations to the wellbeing of each member of each age group. The analysis of the evolution of age profiles of transfers and other age reallocations before the crisis in Spain can be of great importance to observe the impact of demographic and economic trends on the transfer system, and preview with more accuracy what future changes in the age structure will have on economy and wellbeing. Therefore, we will estimate the lifecycle deficit and their related age reallocations profiles (transfers and asset-based) from 2000 to 2008 for Spain using National Transfers Accounts methodology. Methodology We use the NTA methodology presented by Lee and Mason (2011) and at the webpage to estimate transfers profiles by age groups and sex. The NTA method consists in calculating age profiles of transfers (received and made) at the aggregate level in accordance with national accounting. These resource reallocations between ages can be realized through three mechanisms: private transfers (those between families and within family, such as parents paying their children's education), public transfers (from or the for the government, such as payment of pensions to retirees), and reallocation of assets through market (they are intertemporal exchange flows between different ages of the same individual, such as borrowing when you are young that will be paid back as the person ages). First there is the estimation of the lifecycle deficit (LCD). This is the difference between consumption and income in each age. When the LCD is positive, it means that consumption is above income, and this needs to be financed by a transfer (private or public) or an asset based age reallocation. On the contrary, when the LCD is negative, it means that income is higher than consumption and it will imply an outflow transfer or an age reallocation to other age groups. For the whole economy, then, it must hold the following equation: l C x Y 123 = Y a x x S 123 +TGI TGO x x x TFI TGO x x Lifecycle Deficit Asset agereallocations Public Transfers PrivateTransfers where C is the consumption, Y represents labour income, Ya income from assets, and S savings. Public (G) and private or family (F) transfers are composed by inflows (I) and outflows (O).

3 Obtaining the LCD profile allows to estimate the way surplus finance the deficit, so that an age profile is obtained for public transfers profiles, private transfers and asset relocation occurred in the capital market. In each case, we use a methodology adapted to each profile characteristics, separately by sex. Once the profiles are obtained an alignment process is applied in order for them to meet the aggregates value to the equivalent data in the national accounts. Preliminary results In Table 1 there are the macroeconomic aggregates from 2000 to 2008 of the Lifecycle deficit and the Age Reallocations, and their components, in 2000 prices. It can be seen that the LCD was decreasing from 2000 until 2003 and from then it shows a continuous increase until While consumption and Labor income increased every year, consumption grew at a higher rate than Labor Income from Among consumption, it is public consumption that rises faster increasing its share in total consumption from 25% in 2000 to 28% in Consequently, this general evolution has its compensation in age reallocations that must equal the lifecycle deficit. The analysis of age reallocations at the aggregate level is very limited, however, as domestic transfers (public and private), must equal zero, and the aggregate figure only refers to net transfers from the rest of the world. It is only with the age profiles analysis that it can be observed in more detail the participation of each kind of transfer (public and private) to finance the LCD of each age group. To observe age profiles, then, we present Graphic 1 and 2. They show a comparison between 2000 and 2008 Lifecycle Deficit (LCD) and Government Transfers (TG). In Graphic 1 it can be observed how the increase in the LCD between 2000 and 2008 is clearly concentrated among the dependent age groups, children and elderly, which means that their consumption has been increasing in these years. In relation to TG graphic, it can be observed a greater net transfer outflow from the working age groups in 2008 than in As the main difference in outflows transfers during these years is associated with social contributions, this difference can be due to the increase in labor income levels in 2008 in comparison to Although the aggregated data show an increase in public consumption, it seems that this consumption has been distributed equally among age groups, as there are not much differences with However, this is only a preliminary result, and in a more in depth analysis it can be compared also the components of the LCD and the TG. The analysis of each year from 2000 and 2008 will allow observing if the difference between these two years evolved gradually. Moreover, the inclusion of all age profiles is crucial to link them and have a general panorama of the transfers and age reallocation system, as all of them are intrinsically connected.

4 Table 1: Components of the Lifecycle Deficit and the Age Reallocations for Spain, from 2000 to 2008 (2000 prices) Source: National Accounts from INE (

5 Source: Authors estimations Source: Authors estimations Bibliography Antuofermo, M., Di Meglio, E. (2012). Population and social conditions. Statistics on focus, 9/2012. Eurostat, European Comission. Eurostat (2012). ate debt in % of GDP - non consolidated - annual data. Downloaded 10 October In: de=tipspd10 Lee, R. and Mason, A. (2011). Population aging and the generational economy: A global perspective. Cheltenham, UK, Edward Elgar.

6 Patxot, Concepció, Elisenda Rentería, Miguel Sánchez Romero and Guadalupe Souto, Integrated results for GA and NTA for Spain: some implications for the sustainability of welfare state. Moneda y Crédito, n. 231, Fundación Banco Santander, Madrid.

THE UNEQUAL IMPACT OF THE CRISIS BY AGE: AN ANALYSIS BASED ON NATIONAL TRANSFER ACCOUNTS

Global NTA, México D.F. 23-7/7/2018 THE UNEQUAL IMPACT OF THE CRISIS BY AGE: AN ANALYSIS BASED ON NATIONAL TRANSFER ACCOUNTS Meritxell Solé (UB), Giorgos Papadomichelakis (UB), Guadalupe Souto (UAB), Elisenda