Reformulating the Support Ratio to Reflect Asset Income and Transfers

Andrew Mason, University of Hawaii at Manoa

The support ratio is a simple and intuitive indicator of the consequences of population aging, and its changes are interpreted as implying corresponding changes in per capita age adjusted consumption. However, this holds only when net consumers rely on transfers from net producers. If instead they rely on asset income, then support ratio variations have no effect on per capita consumption if the economy is open, and likewise across golden rule economies with different population growth rates. Here we reformulate the support ratio to include both asset income and transfers. In countries in which the elderly are funded heavily by public transfers as in Sweden or Austria, the new measure gives the same result as the old one. In countries like the US or Mexico where old age consumption is funded more heavily out of asset income, the new measures suggest that the effects of population aging will be muted.

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Presented in Session 162: Advances in Measurement and Methodology in Population, Development and Environment