Public Expenditures in NTAs in Comparative Context

Introductory remarks by Jorge Bravo4th Annual National Transfer Accounts

WorkshopBerkeley, California, 19 and 20 January, 2007

Public Expenditures in NTAs in Comparative Context

1. Public expenditures: international differences

2. Patterns and weight of Public Transfers in the NTA system

3. Some methodological issues

Public expenditures: international differences

Government expenditures show substantial international variability according to the type of economic system, and wealth and degree of development; they tend to be larger in the more developed countries.

Reminder of the Concept of Expenditures, Transfers in the NTA framework

• Perspective from the individual government expenditures are public transfer inflows (taxes are outflows)

• “Public Transfers” comprise cash and in-kind transfers. Cash transfers constitute disposable income, and are one means of financing private consumption. In-kind transfers constitute public consumption

Patterns and weight of Public Transfers in the NTAs

a) Fairly systematic and distinct broad age patterns

b) Government in-kind transfers account for a substantial proportion of total consumption

c) Examination of total transfers = in-kind + cash transfers shows that very large portions of the consumption of individuals is arbitrated by the public sector

Patterns and weight of Public Transfers in the NTAs

a) Public consumption age patterns are very distinct (U-shaped). They almost mirror-image those of private consumption (inverted U-shaped)

b) Government in-kind transfers account for a very important portion of total consumption, even in free-market economies

Public vis-à-vis Private Consumption

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+

Age

Per

Ave

rag

e L

abo

r In

com

e A

ges

30-

49

Taiw an, CF

Thailand, CF

US, CF

Japan, CF

Indonesia, CF

Costa Rica, CF

Austria, CF

Brazil, CF

Chile, CF

China, CF

France, CF

India, CF

Philippines, CF

S.Korea, CF

Slovenia, CF

Sw eden, CF

Uruguay, CF

New member, CF

Taiw an, CG

Thailand, CG

US, CG

Japan, CG

Indonesia, CG

Costa Rica, CG

Austria, CG

Brazil, CG

Chile, CG

Source: NTA website as of Jan/07

U.S.

U.S.

Thailand

Thailand

Public transfers by sector/type

• Very similar overall age shapes across countries (with few minor differences),

• but with extremely different levels in education and health public transfers

Public In-kind transfers in Education

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Age

pe

r m

ea

n Y

L 3

0-4

9

Taiw an, CGE

Thailand, CGE

US, CGE

Japan, CGE

Indonesia, CGE

Costa Rica, CGE

Austria, CGE

Brazil, CGE

Chile, CGE

China, CGE

France, CGE

India, CGE

Philippines, CGE

S.Korea, CGE

Slovenia, CGE

Sw eden, CGE

Uruguay, CGE

New member, CGESource: NTA website as of Jan/07

Indonesia

Japan

U.S.

Thailand, Chile, Costa Rica, Taiw an

Public In-kind transfers in Health

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

pe

r m

ea

n Y

L 3

0-4

9

Taiw an, CGH

Thailand, CGH

US, CGH

Japan, CGH

Indonesia, CGH

Costa Rica, CGH

Austria, CGH

Brazil, CGH

Chile, CGH

China, CGH

France, CGH

India, CGH

Philippines, CGH

S.Korea, CGH

Slovenia, CGH

Sw eden, CGH

Uruguay, CGH

New member, CGHSource: NTA website as of Jan/07

Indonesia

Japan

U.S.

Costa Rica

Thailand

Public In-kind transfers in Other

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

pe

r m

ea

n Y

L 3

0-4

9

Taiw an, CGX

Thailand, CGX

US, CGX

Japan, CGX

Indonesia, CGX

Costa Rica, CGX

Austria, CGX

Brazil, CGX

Chile, CGX

China, CGX

France, CGX

India, CGX

Philippines, CGX

S.Korea, CGX

Slovenia, CGX

Sw eden, CGX

Uruguay, CGX

New member, CGX

Indonesia

Japan & U.S.

Costa Rica

Thailand

Source: NTA website as of Jan/07

Chile

Taiwan

Patterns and weight of Public Transfers in the NTA system

a) Public consumption age patterns are very distinct (U-shaped), they almost mirror-image those of private consumption (inverted U-shaped)

b) Government in-kind transfers account for a substantial portion (1/10 to more than 1/3) of total consumption, in different types of economies (from China to India, Japan, the U.S., Chile)

Monthly Per Capita Production and Consumption, 1999/2000, India

0

500

1000

1500

2000

2500

1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97

Total Consumption Labor Income Private Consumption

Cases of relatively low public consumption: India, Philippines, Thailand

Cases of high public consumption: China, but also important in the U.S. and Japan

Monthly Per Capita Production and Consumption, Rural China

0

1000

2000

3000

4000

5000

6000

1 5 9 1317212529333741454953576165697377818589

total c public c Labor income

Share of In-kind public transfers in total Consumption

0%

10%

20%

30%

40%

50%

60%

70%

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

pe

rce

nt

Taiw an

Thailand

US, CF

Japan

Indonesia

Costa Rica

Austria

Brazil

Chile

China

France

India

Philippines

S.Korea

Slovenia

Sw eden

Uruguay

Newmember, CF

Source: NTA w ebsite data as of Jan/07

Taiw an

U.S.

Indonesia

Costa Rica

Patterns and weight of Public Transfers in the NTA system

c) Total public transfers (adding on those in cash) provide an indication of the overall weight of the government as a mediator of the transfers. The data show very large portions of the consumption of individuals being arbitrated by the public sector, especially in some ages (e.g., slightly under 30% of the consumption of the elderly in the U.S., about 50% in Chile, slightly less than 60% in Japan).

Source: Ogawa et al. (2006)Source: Ogawa et al. (2006)

CHILE 1997: Finance of Consumption, by main group ages

25%

-19%

49%

97%

39%74%

22%

12%

1%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

0-14 15-64 65+

Age

Other

Work

Public Transfers

Some methodological issues regarding Public Transfers

a) Definition : In policy/fiscal usage, public transfers usually refer to selected social programs (education, health, social security), and often only to those provided in cash.

Whereas in NTAs, public transfers = general government budget

Methodological issues

b) Measurement. We estimate in-kind transfers by considering the total cost incurred by government in producing/providing a given service. To be consistent with the notion that cash transfer=disposable income, when calculating cash transfers we need to separate that part of the cost that is received in cash by beneficiaries from the administrative/operational costs of running the program and providing the transfer.

Methodological issues

c) Analysis of the distributional effects of transfers. Traditionally and most commonly, poverty and inequality are assessed on the basis of household income. Typically, the distributive effect of government policies is assessed by adding public cash transfers to the HH “autonomous income”

Methodological issues

c) Analysis. NTAs provide a new means of evaluating the distributional impact of public (and private) transfers, characterized by:

- Using total individual consumption as the basis to assess poverty and inequality

- Considering explicitly the incidence of cash and in-kind transfers, taxes, and of the net public transfers

- Doing all of the above by age and for different cohorts true life-cycle assessment