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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.
