some economic and fiscal implications of the demographic transition in latin america

Some economic and fiscal implications

of the demographic transitionin Latin America.

Tim MillerCELADE - 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.

①Population of Latin America is aging.②Economic implication: A “demographic

dividend” period in which the working-age population grows faster than the total population.

③Fiscal 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 20502005

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/NY/N Y/WY/W W/LW/L L/NL/N

GDP per capita

GDP perworker

Proportionof

working-agepopulationwith a job

Proportionof

populationin the

working-ages

The impact of demographic transition on economic wellbeing.

GDPPer capita

GDPPer capita

Productivity

Productivity

Employment

Employment

Age structure

Age structure

GDP per capita

GDP perworker

Proportionof

working-agepopulationwith a job

Proportionof

populationin the

working-ages

Direct impact of demographic transition: Positive then turns Negative

GDPPer capita

GDPPer capita

Productivity

Productivity

Employment

Employment

Age structure

Age structure

Demographic TransitionDemographic Transition

Indirect impact of demographic transition: might be many times larger.

GDPPer capita

GDPPer capita

Productivity

Productivity

Employment

Employment

Age structure

Age structure

Demographic TransitionDemographic Transition

Human & Financial Capital

Human & Financial Capital

Female Labor Force

Participation

Female Labor Force

Participation

Bloom and Canning (2004,2007)

Mason & Lee (2006)

Lee & Mason (2008)

CEPAL (2009a, 2009b)

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

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 Hungary

Uruguay Philippines Slovenia

South Korea Spain

Taiwan Sweden

Thailand

28 countries are participating in

the NTA project.

The life cycle pattern of consumption is supported by large intergenerational resource flows.

Relative Consumption per Person in High and Middle Income Countries

Education

Health

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 Findings①On average, the fiscal impact of population

aging will be as large in Latin America as in Europe.

②Fiscal impact of population aging varies among the 10 countries – with pension reforms playing a large role.

③Increases in health care obligations are likely to rival those of pensions.

④Population aging greatly reduces the costs of educational investments in the region.

http: www.cepal.org/celade

Email: Tim.Miller@cepal.org