Inter-generational transfers: fair or unfair?
Looking at household expenditure data recently, I was intrigued by what we pay for out of our incomes. Compared to what we value, there seemed to be quite a mismatch (Chart 1).
Of course, the missing piece of the jig-saw puzzle is taxation and public expenditure: services the government pays for and citizens receive for free (at point of use) or at a subsidised cost. Add this to the picture, and the match is better (Chart 2). Or is it?
Yes, in the aggregate, the nation spends money more or less in line with preferences. But as far as taxation and public spending goes, the people paying are not the people receiving the benefit. In particular, there is a vast difference between different age groups. OBR recently illustrated the size of these inter-generational income transfers (Chart 3).
It may be controversial to ask whether this is fair. After all, the whole point of income redistribution, and the universal provision of public services, is to reduce inequality. The incomes of those in the working age population are much higher than the very young or the very old (Chart 4), so maybe it is reasonable to conclude that they can afford to pay.
Moreover, education and health – the big public expenditure items – are seen as services everyone should have access to, regardless of their income or wealth.
But have the transfers of money from the working-age population to the young and the old gone too far? The results from the ONS’s National Well-being analysis suggest that they might have. Indeed, the similarity between levels of well-being (Chart 5) and the largest recipients (and smallest tax-contributors to) public services (Chart 3, above) is striking.
Put this together with the size of the different age groups in the population, and you would be forced to conclude that something is not quite right: there is an almost inverse correlation between size of the population group and life satisfaction (Chart 6).
Clearly, public policy is just one factor at play when it comes to life satisfaction – but one which seems, currently, not to achieve its stated goal of fairness.
Senior Teacher at Yasodhara Ashram
10 年Did the research look at reasons for satisfaction? Do they have anything to do with tax, income and expenditure or do they relate to quality of life factors such as confidence, sense of wellbeing...?
Research Consultant
10 年Tera- Terrific analysis. Got me thinking about extensions to behavioral economics...specifically the work of David Laibson at Harvard. He has a consistent stream of research into aging, consumption, intertemporal choice and discounting as well as attitudes towards same going back to 2001. Many of the disconnects you note seem related...
Chair, NED, Senior Advisor
10 年For those interested in more analysis on well-being, this recent OECD publication "How was life?" provides a fascinating historical perspective: https://bit.ly/1zdBIH0 Chapter 13 is particularly interesting, looking at well-being trends across geographies since 1820. Looks like we are lucky to live in the UK.
Director at the Network of Wellbeing
10 年Tera. These are great graphics, but I think three points need to be borne in mind: 1. Human beings are a renewable resource. If we want to sustain our well-being into the future (let alone the well-being of future generations) we have to provide for young people. So some inter-generational transfer toward young people is inevitable. 2. Human beings generally cannot provide for themselves when they are older. We should provide for older people as we expect younger people to provide for us when we are elderly. Some inter-generational transfer toward older people is therefore also inevitable - especially when you consider that much of the benefit of our health spending lies in enabling people to live longer. 3. The causes of happiness and life satisfaction are complex and they do not correlate well with absolute income (though richer people generally score higher than poor people). People like Richard Layard, Robert and Edward Skidelsky and Derek Bok have written extensively on this topic. The question I would ask therefore is: do you have any evidence that reducing inter-generational transfers would make middle-aged people happier? If not, reducing the transfer would be counter-productive.
Founder | Investor| Mentor | Author | NED
10 年Wonderful analysis. Very insightful.