MEDICARE FROM THE PERSPECTIVE OF GENERATIONAL ACCOUNTING: Comparing U.S. Generational Accounts 3

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The sources of generational imbalance in the various countries differ across the countries. In Japan, the scaled generational accounts of both the young and the old substantially exceed those of young and old Americans. For example, 40-year-olds face remaining lifetime net taxes of $101,300 in the U.S., but $322,100 in Japan! And 70-year-olds Americans can expect to receive $104,600 in net transfers over the rest of their lives compared with only $54,700 for comparably aged Japanese. These findings would, other things equal, suggest a smaller generational imbalance in Japan than in the U.S. But other things aren’t equal. The Japanese generational imbalance is greater than that of the U.S., in part, because of its level of projected government purchases and, in part, because of its demographics. Japan is aging more rapidly and more significantly than is the U.S. In the U.S. today, there are close to 19 elderly for every 100 workers. In 2030, there will be 37 elderly for every 100 workers. In Japan today, there are only about 17 elderly per 100 workers, and in 2030, there will be 45 elderly per 100 workers.

Germany will age less rapidly than Japan, but end up with a higher elderly dependency ratio than Japan. In 2030, there will be 49 older Germans for each 100 German workers, compared to about 22 per 100 right now. The timing of Germany’s aging coupled with the extremely high level of net taxes it is collecting from current German workers explains why Germany’s generational imbalance is less severe than that of either Japan or Italy. More info

Canada is another interesting case. Projected Canadian demographic change is fairly similar to that of the U.S. This point, notwithstanding, Canada’s intergenerational imbalance is zero, whereas the U.S. imbalance is over 50 percent. The main difference in policy is that Canada is collecting substantially larger net taxes from current Canadian workers than is the U.S. For 30-year-olds, for example, the scaled Canadian generational account is $241,500 compared with $170,000 for the U.S.