Transcript Vienna 2008 - National Transfer Accounts

The impact of changing age structure
on transfer systems:
Latin America, 1950-2050
Tim Miller, Ciro Martinez, Paulo Saad, Mauricio Holz, and Dirk Jaspers
CELADE – Population Division
United Nations Economic Commission for Latin America and the
Caribbean (Santiago, Chile)
Presented at the UNFPA/IFS Expert Group Meeting on Mainstreaming
Age Structural Transitions into Economic Development Policy and
Planning. 7-9 October 2008. Vienna Institute of Demography of the
Austrian Academy of Sciences.
Outline of the Talk
I.
II.
Transfers (Family + Public Sector).
Demographic Forecasts of Public
Sector Budgets: Education, Health care,
and Pensions.
III. The Costs of Achieving Universal
Secondary Education in Latin America.
Two Features of NTAs
1. Add age dimension to National Accounts.
2. Permit comparison of Family Transfers
and Public Sector Transfers within the
same framework.
The Economic Lifecycle:
Latin America, circa 2000
The Lifecycle Deficit:
Mainly financed by transfers
Transfers by Source:
• FAMILY. Within households: as when
parents provide for the consumption needs
of their children. Between households:
financial aid from adult children to their
parents living in another household.
• PUBLIC SECTOR. Taxes paid and
benefits received from governments (inkind and cash).
Transfers Received by Age
Transfers Given by Age
Net Transfers Received by Age
A Weighted Age Model of Dependency
TRANSFER DEPENDENCY RATIO =
B(t,i)/D(t,i) =
Sum { b(x)*n(x,t,i) } / Sum { d(x)*n(x,t,i) }
Where,
B(t,i) = Weighted number of beneficiaries in year t in country i;
D(t,i) = Weighted number of donors in year t in country i;
b(x) = Average benefit received at age x in standard profile (Fig 2c).
d(x) = Average benefit given at age x in standard profile (Fig 2c).
n(x,t,i) = Population at age x, year t, in country i.
A Weighted Age Model of Dependency
FAMILIAL DEPENDENCY RATIO =
B(t,i)/D(t,i) =
Sum { b(x)*n(x,t,i) } / Sum { d(x)*n(x,t,i) }
Where,
B(t,i) = Weighted number of beneficiaries in year t in country i;
D(t,i) = Weighted number of donors in year t in country i;
b(x) = Average familial benefit received at age x in standard profile
(Fig 2c).
d(x) = Average familial benefit given at age x in standard profile (Fig
2c).
n(x,t,i) = Population at age x, year t, in country i.
A Weighted Age Model of Dependency
PUBLIC SECTOR DEPENDENCY RATIO =
B(t,i)/D(t,i) =
Sum { b(x)*n(x,t,i) } / Sum { d(x)*n(x,t,i) }
Where,
B(t,i) = Weighted number of beneficiaries in year t in country i;
D(t,i) = Weighted number of donors in year t in country i;
b(x) = Average public sector benefit received at age x in standard
profile (Fig 2c).
d(x) = Average public sector benefit given at age x in standard profile
(Fig 2c).
n(x,t,i) = Population at age x, year t, in country i.
Strategy
• Apply the population estimates from the
UN to data from NTA.
• Observe changes in Transfer Dependency
Ratio: the ratio of aggregate benefits
relative to aggregate taxes.
• Observe changes in Family Dependency
Ratio and in Public Sector Dependency
Ratio.
• 1 = Base year (balanced); <1 = Favorable
demographic change; >1 = Unfavorable.
Divergent Paths for Familial and Public Sector Dependency Ratios
Quadrant II: Divergent Paths,
Decline in familial dependency ratio > Increase in fiscal dependency ratio
MODEL RESULTS
1. Demographic pressures on government
budgets are increasing in the midst of the
“window of opportunity.” Divergent paths
for Public Sector Dividend and Familial
Dividend.
2. Demographic pressures on government
budgets at or near historical lows.
3. Likely large increases in public sector in
the near future.
II. Public Sector Transfers
Divergent Paths:
Education and Pension
Dependency Ratio
Current Public Spending
as % of GDP
A Latin American Pattern?
High spending per older person
relative to spending per child.
A simple age model of
Expenditures as a Share of GDP
E/Y =
Sector Dependency Ratio * Coverage Rate * Benefit Level =
P(r)/P(w)
*
B/P(r)
* (E/B)/(Y/P(w))
Where
E = Total expenditures in the sector (education, health
care, or pensions)
Y = GDP
P(r) = Population at Risk
P(w) = Working-age Population (ages 20-64)
B = Number of beneficiaries
Education dependency ratio:
A 4-fold decline
Pension Dependency Ratios:
A 4-fold increase
Health Dependency Ratio:
Not much change
Public spending forecasts maintaining
current levels of coverage and benefits.
Net increase in program expenditures due to population aging: 2020
MODEL RESULTS
1. Significant declines in costs of education,
which could be invested in expanding
coverage or increasing spending per student.
The transfer dividend could be invested in
education (yielding an education dividend). An
Education-First development strategy?
2. In many countries, significant pressures from
pension systems will threaten these
investments.
III. Universal Secondary Education
Spending on Secondary Education
Nicaragua
Japan
Nicaragua /
Japan
Spending
(% GDP)
1.7%
1.6%
0.95
Spending per
student
(% GDP per
working-age
adult)
10%
17%
1.7
Gross enrollment
Ratio
66%
102%
1.5
Education
Dependency
Ratio
0.26
0.10
0.38
A Demographic Constraint?
Cost of Universal Secondary Education: Colombia: 2005-2050
A
D
C
B
MODEL RESULTS
1. Achieving Universal Secondary
Education is becoming cheaper over
time.
2. Demographic dividend? Too long to
wait.
3. Borrow in anticipation of demographic
dividend (and education dividend)?
Future Work
1. Forecast of government budgets within NTA
framework. Do pension costs crowd-out
educational investments? The Latin America
Dilemma?
2. Develop models that look at demographic,
education, and gender dividends (e.g.,
CELADE forecast of effective workforce). An
Education-First development strategy?
3. Comparison studies: Cross-country
regressions versus modeling approaches.
Emergence of high-growth economies in Latin
America?