Intergenerational transfer systems and cohort-crowding

Thomas Lindh, Institute for Futures Studies

Previous studies indicate that cohort-crowding effects found in the United States are absent in some European countries, among these Sweden. It is likely that this may be due to differences in the institutions that mediate intergenerational resource flows, but comparative data on these resource flows have been scarce and difficult to analyse from an institutional perspective. In the global National Transfer Accounts project resource flows across generations are tracked within the standard System of National Accounts using a common methodology. Introducing age into the National Accounts maps changing transfer flows; through the asset markets as well as public and private transfers. It thus provides new tools for analysing the sustainability of these systems as well as the average effects for different cohorts. National Transfer Accounts for a given year yields a cross-section age profile of the resource flows from one cohort to another. In an ideal steady-state model this would be equivalent to the life cycle age profiles of each cohort adjusted for growth. Tracking the cohort profiles in a time series of NTA shows, however, that the cohort life cycle profiles tend to change systematically over time. In the real world some cohorts will fare better than others due to cohort-crowding, differential effects from crises or policy reforms depending on the life stage at which they occur and so on. This paper makes a comparative analysis of cohort-crowding effects in Sweden and the US. Institutional differences in the financing of life cycle deficits are important for the outcomes of large and small cohorts. The US transfer system differs considerably from the Swedish system.

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Presented in Session 103: Intergenerational economic transfers

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