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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. - PowerPoint PPT Presentation
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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 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.
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 benefitswith 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
①No change (relative to GDP/worker). ②Reduction over time due to pension reforms.③Move 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.
Nicaragua Japan
Spending(% GDP)
1.7% 1.6%
Benefit GenerosityRatio(% GDP/worker)
6.5% 16%
Education Dependency Ratio
0.26 0.10
Spending on Secondary Education
Youngest Oldest
Public spending on pensionsas share of GDP
Pension reforms have shifted costs away from public sector.
Youngest Oldest
PA
YG
O
PA
YG
O
PA
YG
O
PA
YG
O
Sub
stitu
tive
Sub
stitu
tive
Par
alle
l
Par
alle
l
Mix
ed
Mix
ed
Public spending on health careas 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…
• Budget projection?• Education as investment?• Beyond averages?• Probabilistic projection?• An NTA-approach?