Transcript Outline Peru

Some economic and
fiscal implications
of the demographic transition
in Latin America.
Tim Miller
CELADE - Population Division of United Nations Economic
Commission for Latin America and the Caribbean.
Regional Workshop on The Economic, Fiscal, and Welfare
Implications of Chronic Diseases in the Americas,
November 24-25, 2009
PAHO Headquarters, Washington, DC
Three messages about
Latin American demography.
① Population of Latin America is aging.
② Economic implication: A “demographic
dividend” period in which the working-age
population grows faster than the total
population.
③ Fiscal projection: Future health obligations
larger than future pension obligations in Latin
America.
1. Demographic transition
Population aging in Latin America
Population aging:
The slow revolution.
1950
2005
2050
2. The demographic dividend
A temporary period lasting several
decades in which age structure is
particularly favorable for economic
growth.
The impact of demographic transition on
economic wellbeing.
Y/N
GDP per
capita
Y/W
GDP per
worker
W/L
Proportion
of
working-age
population
with a job
L/N
Proportion
of
population
in the
working-ages
The impact of demographic transition on
economic wellbeing.
GDP
Per capita
GDP per
capita
Productiv
ity
GDP per
worker
Employ
ment
Proportion
of
working-age
population
with a job
Age
structure
Proportion
of
population
in the
working-ages
Direct impact of demographic transition:
Positive then turns Negative
GDP
Per capita
Productiv
ity
Employ
ment
Demographic Transition
Age
structure
Indirect impact of demographic transition:
might be many times larger.
GDP
Per capita
Bloom and
Canning
(2004,2007)
Mason & Lee
(2006)
Productiv
ity
Employ
ment
Human &
Financial
Capital
Female Labor
Force
Participation
Lee & Mason
(2008)
CEPAL (2009a,
2009b)
Demographic Transition
Age
structure
Contributions of changes in age structure, productivity, and
employment to annual growth of GDP/capita, 1997-2007.
3. Long-run fiscal impact of
changing age structures
Increases in health obligations will
rival those of pensions
“Without measures of
economic aggregates
like GDP, policymakers
would be adrift in a sea
of unorganized data.”
Paul Samuelson
National Transfer Accounts (NTAs)
Cuentas Nacionales de Transferencias
 A new tool for monitoring the impact of
population aging on the economy.
 A satellite account of National Accounts
which measures economic activity by age.
 International project under direction of
Professors Ron Lee (UC Berkeley) and Andy
Mason (U Hawaii). CEPAL/IDRC project
consists of 5 Latin American countries.
AFRICA
AMERICAS
ASIA-PACIFIC
EUROPE
Kenya
Brazil
Australia
Austria
Mozambique
Chile
China
Finland
Nigeria
Costa Rica
India
France
Senegal
Mexico
Indonesia
Germany
South Africa
United States Japan
Uruguay
28 countries
are participating in
the NTA project.
Hungary
Philippines
Slovenia
South Korea
Spain
Taiwan
Sweden
Thailand
The life cycle pattern of consumption is supported
by large intergenerational resource flows.
Relative Consumption per Person in
High and Middle Income Countries
Health
Education
Relative health spending per
older person much higher in
high income countries.
Long-run budget projections
 Impacts of demographic changes are profound, but not
observed in the short-run.
 Mindful of population aging, several governments have
recently begun to issue long-run projections of their
budgets: European Union, United States, Australia,
New Zealand, United Kingdom.
 Our aim: long-run projections of public expenditures
on education, health care, and pensions for 10 Latin
American countries.
Projection Model based on Age
• E(t)/GDP(t) =
Sum over x { b(x,t) * P(x,t)/P(20-64,t) }
• b(x,t) = age-specific spending relative to
GDP/working-age adult. Taken from NTA
project. Move toward OECD levels as
income/worker rises.
• p(x,t) = population at age x in year t. Taken
from CELADE.
Strong age pattern in government spending ->
demographic changes have large fiscal impacts.
Large declines in school-age population relative to working-ages.
Large increases in retirement-age population
relative to working-ages.
Youngest
Oldest
Key Fiscal Findings
① On average, the fiscal impact of population
aging will be as large in Latin America as in
Europe.
② Fiscal impact of population aging varies
among the 10 countries – with pension
reforms playing a large role.
③ Increases in health care obligations are likely
to rival those of pensions.
④ Population aging greatly reduces the costs of
educational investments in the region.
http: www.cepal.org/celade
Email: [email protected]