Transcript Fiscal_Proj_July2009

PROJECTIONS OF PUBLIC EXPENDITURES
ON EDUCATION, HEALTH CARE,
AND PENSIONS IN
TEN LATIN AMERICAN COUNTRIES:
2005-2050.
Tim Miller (CELADE, [email protected])
Carl Mason (UC Berkeley, [email protected])
Mauricio Holz (CELADE, [email protected])
July 2009, World Bank
Key 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.
The Economist, June 27, 2009
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.
 The aim of this paper: long-run projections of public
expenditures on education, health care, and pensions
for 10 Latin American countries. (Not budgets.)
Strong age pattern in government spending ->
demographic changes have large fiscal impacts.
Projections for 10 countries
The Projection Model
Combine NTA age-profiles of benefits
with CELADE population projections.
Equation 1.
Expenditures/GDP can be expressed as
product of demography and policy.
DEMOGRAPHIC
DEPENDENCY RATIO
FOR EDUCATION,
HEALTH, AND PENSIONS
At-risk Population
÷
Working-age Population
BENEFIT
GENEROSITY RATIO
FOR EDUCATION,
HEALTH, AND
PENSIONS
Benefits per person
÷
GDP per working-age
person
Equation 2. [Adding age detail]
• E(t)/GDP(t) =
Sum over x { b(x,t) * P(x,t)/P(20-64,t) }
• b(x,t) = age-specific benefits relative to
GDP/working-age adult. Taken from NTA
project.
• p(x,t) = population at age x in year t. Taken
from CELADE.
Evolution of age-specific benefits
① No change (relative to GDP/worker).
② Reduction over time due to pension reforms.
③ Move toward or beyond current benefit
levels in OECD countries, as GDP/worker rises
in the 10 countries (@ 2.5%/year).
[Can also view OECD targets as expansion of benefits currently
enjoyed by top 20-40% of income distribution to everyone].
Public spending on education
as share of GDP
Population aging greatly reduces the
costs of educational investments.
Spending on Secondary Education
Nicaragua
Japan
Spending
(% GDP)
1.7%
1.6%
Benefit
Generosity
Ratio
(% GDP/worker)
Education
Dependency
Ratio
6.5%
16%
0.26
0.10
Youngest
Oldest
Public spending on pensions
as share of GDP
Pension reforms have shifted costs
away from public sector.
Youngest
Oldest
PAYGO
Mixed
Substitutive
PAYGO
PAYGO
Mixed
Substitutive
Parallel
Parallel
PAYGO
Public spending on health care
as share of GDP
Increases in health care obligations
will rival those of pensions.
Youngest
Oldest
Fiscal impact of population aging
Projected to be as large
in Latin America as in Europe.
Youngest
Oldest
Future steps…
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Budget projection?
Education as investment?
Beyond averages?
Probabilistic projection?
An NTA-approach?