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Some economic and fiscal implications of the demographic transition in Latin America.

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.

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Some economic and fiscal implications of the demographic transition in Latin America.

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  1. Some economic and fiscal implications of the demographic transitionin 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

  2. Three messages about Latin American demography. • Population of Latin America is aging. • Economic implication: A “demographic dividend” period in which the working-age population grows faster than the total population. • Fiscal projection: Future health obligations larger than future pension obligations in Latin America.

  3. 1. Demographic transition Population aging in Latin America

  4. Population aging:The slow revolution. 1950 2005 2050

  5. 2. The demographic dividend A temporary period lasting several decades in which age structure is particularly favorable for economic growth.

  6. The impact of demographic transition on economic wellbeing. Y/N Y/W W/L L/N GDP per capita GDP per worker Proportion of working-age population with a job Proportion of population in the working-ages

  7. The impact of demographic transition on economic wellbeing. GDP Per capita Productiv ity Employment Age structure GDP per capita GDP per worker Proportion of working-age population with a job Proportion of population in the working-ages

  8. Direct impact of demographic transition: Positive then turns Negative GDP Per capita Productiv ity Employment Age structure Demographic Transition

  9. Indirect impact of demographic transition: might be many times larger. GDP Per capita Productiv ity Employment Age structure Bloom and Canning (2004,2007) Mason & Lee (2006) Lee & Mason (2008) CEPAL (2009a, 2009b) Human & Financial Capital Female Labor Force Participation Demographic Transition

  10. Contributions of changes in age structure, productivity, and employment to annual growth of GDP/capita, 1997-2007.

  11. 3. Long-run fiscal impact of changing age structures Increases in health obligations will rival those of pensions

  12. “Without measures of economic aggregates like GDP, policymakers would be adrift in a sea of unorganized data.” Paul Samuelson

  13. 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.

  14. 28 countries are participating in the NTA project.

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

  16. Relative Consumption per Person in High and Middle Income Countries Health Education

  17. Relative health spending per older person much higher in high income countries.

  18. 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.

  19. 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.

  20. Strong age pattern in government spending -> demographic changes have large fiscal impacts.

  21. Large declines in school-age population relative to working-ages.

  22. Large increases in retirement-age population relative to working-ages.

  23. Youngest Oldest

  24. Key Fiscal Findings • On average, the fiscal impact of population aging will be as large in Latin America as in Europe. • Fiscal impact of population aging varies among the 10 countries – with pension reforms playing a large role. • Increases in health care obligations are likely to rival those of pensions. • Population aging greatly reduces the costs of educational investments in the region.

  25. http: www.cepal.org/celade Email: Tim.Miller@cepal.org

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