Through the welfare state, states take responsibility for providing their citizens with a set of basic services that are accessible to all, regardless of their income or wealth. In order to guarantee these services, there are a series of redistributive mechanisms, one of which is known as intergenerational transfers. In strictly economic terms, people’s life cycle can be divided into three stages: childhood and early youth, adulthood and retirement. As individuals only generate resources during their adulthood, when they are able to work, resource reallocation mechanisms are required in order for their needs to be met during childhood and retirement. The concept of life cycle deficit, which refers to people’s economic dependency over the course of their lifetime, is used to understand this phenomenon. People are economically dependent when they consume more resources than they produce (measured in terms of labour income), during their childhood and old age. In contrast, throughout adulthood people produce more resources than they consume. The extra resources adults generate during this stage are devoted to covering the transfers to the child population and the elderly or to savings.

Pensions currently constitute the largest social expenditure in almost all Western countries, with the exception of the Anglo-Saxon countries. The pension system guarantees a minimum level of well-being for the older population. But what happens to children and young people who, like the elderly, do not have the capacity to obtain resources on their own?

Although countries differ, on the whole the welfare state distributes resources asymmetrically and is biased in favour of the elderly. Whereas the cost of guaranteeing the necessary resources to live during retirement is socialised (through public transfers), the cost of childcare is borne by families (private transfers). This monetary bias is even greater if we take into account the time transfers that families dedicate to looking after and bringing up their children. Graph 1 shows the asymmetry of private-sector and public-sector intervention by ages, while graph 2 sums up the information by showing the percentage of consumption that is funded by the state for children and the elderly.

The National Transfer Accounts (NTA) estimates shown in graph 2 reveal a very striking fact: the welfare state, as it advances, tends to focus to an increasing extent on the protection of the elderly, leaving children and young people mostly under the responsibility of their families (Patxot et al., 2012; Solé et al., 2020). According to the data in the graph, South Korea has the most balanced welfare state, as its public transfers fund 28% of the consumption of the child population and the elderly alike, although the level of public transfers in that country is significantly lower than in European countries. In Sweden, for example, the elderly receive transfers amounting to 93% of their consumption, whereas children only receive 44% of theirs.

In the case of Spain, the graph also reflects the impact of the economic cycle. The already considerable vulnerability of children and young people has been exacerbated since the Great Recession: as we can see in the graph, transfers received by the child and youth population dropped from 43% of their consumption, in 2008, to 35%, in 2012. On the other hand, the elderly enjoyed greater protection, moving from 64% to 67% of their consumption in the same years. This is due to the fact that their income depends to a large extent on a relatively stable pension system.

The role of social transfers in improving citizens’ living conditions is beyond question. As can be seen in graph 3, the risk of poverty is reduced thanks to social expenditure. The economic crisis that broke out in 2008 brought to light the bias of the welfare state, oriented especially towards those aged over 65. This entailed, and still entails today, serious consequences for some countries such as Spain. Organisations such as UNICEF and Save the Children stress that children are the main victims of the crisis, to the extent that the financial crisis became a crisis for children.

In 2015, the risk of poverty in the European Union after social transfers was 21% for children (aged under 18), as opposed to 14% for the elderly (aged over 65). Transfers reduce the risk of poverty by 84% in the case of the elderly, but by only 42% in the child population.

Population ageing is one of the great challenges that will have to be faced by all advanced countries, but Spain and Catalonia especially so. Their fertility rates have decreased significantly over recent decades and life expectancy is among the highest in the world. The severe economic crisis that started in 2008 increased the risk of becoming unemployed and led to wage stagnation. The high poverty rates generated by the lack of protection for children have also become manifest, and it has been shown that transfers to children and young people are essential for guaranteeing the well-being of the population and the sustainability of redistributive systems as such.

As can be seen in the graph above showing the impact of population ageing, the old-age dependency ratio has been increasing over recent years, and this rising trend is expected to continue until 2050 (the retirement period of the so-called baby boomers, those born between 1957 and 1977). These population projections point to a steep rise in the need for public transfers to older people. However, the working-age population, responsible for paying the contributions and a large part of the taxes used to cover public transfers, is not growing at the same rate. This will cause a funding problem, as the revenues from workers will be insufficient to finance the benefits of dependent people. The financial sustainability of the current model is therefore weakened.

Nevertheless, as the population ages, this pension model receives more and more political support and resistance to reform it increases, as has been seen in the recent protests organised by groups of pensioners. Paradoxically, as financial sustainability decreases in this respect, political sustainability grows. Furthermore, the problem of financial sustainability reinforces itself: insofar as the bias of the welfare state in favour of the elderly creates a negative incentive for childbearing, the process of population ageing is intensified.

This context necessitates a comprehensive view of the welfare state that takes into account the different stages of the life cycle and endeavours to strike a balance between transfers to the child population and those set aside for the elderly.

The results of the work on which this article is based are an initial approach to this topic, and should be extended with a time series of data on intergenerational transfers. In addition, in order to complete the life-cycle perspective, these data should be complemented with estimates of non-monetary transfers made in the home.

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MICHAILIDIS, G. and C. PATXOT (2019b): «Political viability of public pensions and education. An empirical application», Applied Economics Letters: 26(3): 245-249.

PATXOT, C., E. RENTERÍA, M. SÁNCHEZ-ROMERO and G. SOUTO (2012): «Measuring the balance of government intervention on forward and backward family transfers using NTA estimates: the modified Lee arrows», International Tax and Public Finance, 19, 442-461 [DOI: 10.1007/s10797-012-9220-5].

Save the Children (2016): Child Poverty. What drives it and what it means to children across the world, Londres: Save the Children UK.

SOLÉ, M., G. SOUTO, E. RENTERÍA, G. PAPADOMICHELAKIS and C. PATXOT (2020): «Protecting the elderly and children in times of crisis: An analysis based on National Transfer Accounts», The Journal of the Economics of Ageing, 15.

UNICEF (2014): «Children of the Recession: The impact of the economic crisis on child well-being in rich countries», Innocenti Report Card, 12.