Generational Wealth Accounts

Abstract

Intergenerational economics is characterised by three central questions: how much living generations transfer to or from future ones, how these transfers are made, and whether these transfers are sufficient to support sustainable levels of consumption for future generations. Up to now, economists have focused on particular elements (e.g. either public transfers or bequests) and not the combined amounts. To provide a comprehensive view, we develop and present Generational Wealth Accounts (GWA) for the UK. These accounts are based around a private sector intertemporal budget as well as a public one, and so extend the public sector Generational Accounts (GA) of Auerbach, Kotlikoff and Gohkale (1991) to the whole economy. Thus, the accounts provide an integrated view of how much current generations are likely to leave future generations; through both the public-sector and the private-sector. We calculate these GWA accounts for the UK from 2005-2015; a period spanning the financial crisis. Critically, this integrated view gives the following findings. First, private-sector inter-generational transfers are of equal magnitude to public-sector ones. Second, we confirm previous work showing that the public sector in the UK faces serious fiscal challenges but, in contrast, we show that the UK private sector is close to balance. Further, though the public sector finances worsened significantly over the crisis, the private sector balance improved, more than fully offsetting this deterioration. Third, we confirm that the implied proportion of wealth held by generations to support their own consumption (life-cycle purposes) is roughly 70%, with the other 30% being bequeathed to younger ones. Further, we also estimate that older generations, who benefited from rising assets prices over this period, are set to consume around 40% of this appreciation, bequeathing the remaining 60%. We subject our findings to strenuous sensitivity analyses.