Measuring the lifecycle impact of welfare state policies in the face of ageing

Abstract

This research investigates how the interplay between demographics, economics and welfare state transfers affects the impact of the ageing process on income redistribution, at both intra and intergenerational levels. We combine different EU comparable data sources with microsimulation techniques in order to measure how agents resort to the three available resource allocation devices over their lifecycle (asset market and public and private transfers), extending the National Transfer Accounts (NTA) methodology at the micro level. Agents are heterogeneous in age, gender, education level and family type. Simulating population dynamics at the micro level allows us to capture not only the ageing process but also the educational transition and the change in family structures occurring in parallel. The resulting projection model allows us to simulate the lifetime net transfers received by individuals from the government and the family, and to compute the adjustment needed to keep the sustainability of the welfare system. The analysis is applied to four European countries representing different welfare state regimes (Spain, Austria, Finland and the United Kingdom). We find differences in the role of private and public transfers in intra and intergenerational redistribution across countries, which can be linked to the various welfare state regimes. Apart from the expected differences observed by gender and by education level, there are significant differences in the interplay between private and public transfers related to parenthood. While parents privately transfer substantially more than childless people in all studied countries, the Austrian welfare state is the only one that compensates high and medium education groups for these differences through higher public transfers to parents. Such compensation is much weaker and more targeted towards the lower educated in the other countries.