National Transfer Accounts: Concepts and results for Chile

Jorge Bravo, U.N. Population DivisionMauricio Holz, ECLAC/CELADE

Presentation at the Expert Group Meeting on Age Structural Transitions, Vienna, Austria, 7-

9 October 2008

NTA Concepts

• NTAs measure, at the aggregate level, reallocations of economic resources across persons of different ages;

• The framework considers the various ways and mechanisms through which the life cycle deficit (LCD) is financed over the lifecycle:

The reallocation framework

NTA significanceProvides comprehensive framework to study,

among other: a) intergenerational reallocation of resources

across countries and over time;b) generational equity of public and private

transfer systems, and to better analyze policy options;

c) population and economic growth, including demographic dividends;

d) life-cycle saving behavior

NTA project: funding and participants

• Funding by NIA, MacArthur Foundation, UNFPA, IDRC, and participating centers

• Leaders are Ronald Lee, University of California, Berkeley, and Andrew Mason, East-West Center, Honolulu;

• Centers and Researchers in: …

NTA project• 25 countries (October 2008)

Project website: http://www.ntaccounts.org/

Summary NTA equation

Lifecycle deficit Asset-based reallocations Net public transfers Net private transfers

Net transfers

Age reallocations

l A g g f fC Y Y S

Results for Chile, 1987-97

Figure 1. Life Cycle Deficit, Chile 1997

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

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

Pes

os

Labor IncomeSelf-Employed IncomePrivate ConsumptionPublic ConsumptionTotal Consumption

Figure 2. Per-Capita in kind Transfers, Chile 1997

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

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

Age

Pes

os

EducationHealthOthersTotal Public Consumption

Figure 3. Per-capita Public Inflows, Chile 1997

-

200

400

600

800

1,000

1,200

1,400

1,600

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

Thou

sand

pes

os

Cash

In-kind

Total

Figure 4. Impact of cash transfers on rates poverty by age group, Chile 1998

Chile 1998

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0-9 10--19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-99 Age

Source: CASEN 1998

%

Excluding in cash public transfersIncluding in cash public transfers

Source: ECLAC (2007) Social Panorama 2007

Source: ECLAC (2007) Social Panorama 2007

Source: ECLAC (2007) Social Panorama 2007

Source: ECLAC (2007) Social Panorama 2007

Figure 5. Per-capita Public Outflows, Chile 1997

0

100

200

300

400

500

600

700

800

0 10 20 30 40 50 60 70 80 90

Thou

sand

s

Value Added Taxes

Taxes On ProductionIndirect Taxes

Direct Taxes

Social Contributions

Other TaxesTotal Taxes

Figure 6. Net (aggregate) public transfers, Chile 1997

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

Mill

ions

Age

Figure 7. Per-Capita private transfers,Chile 1997

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

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

Age

Peso

s

Private transfers inflowsPrivate transfers outflowsNet private transfers

Figure 8. Asset Reallocation, Chile 1997

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

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

Age

Peso

s Asset-Based Reallocations Asset Income Saving

Figure 9. Finance of Consumption, Chile 1997

20%51%

21%13%

-22%

25%53%

59%

-44%

-20% -4%

7%

39%

44% 30%127%

-100%

-50%

0%

50%

100%

150%

200%

0-25 26-54 55+ 65+

Age

Asset BasedReallocationsNet Private Transfers

Net Public Transfers

Labor Income

Changes in LCD 1987-1997

• Significant increase in consumption levels, including education expenditures;

• Large age shift in labor income, reflecting longer education span and postponement of retirement;

• Longer tax-paying lifespan and greater accumulation of assets

Public and private education• Education policies during the 1980s aimed at

improving efficiency, included decentralization, introduction of vouchers, and expansion of private universities. During the 1990s and 2000 policies have increased equity, targeting lower-income families in all education levels

• Per-capita expenditures in education increased substantially 50% (56% public, 40% private), and coverage has risen, but there remains much room for improvement

Consumption in Education, Chile 1987-1997 (relative to average labor income 30-49)

-0.02

0

0.02

0.04

0.06

0.08

0.1

0.12

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

Age

Private Education 1997Private Education 1987Public Education 1997Public Education 1987

School Attendance Rates, Chile 1987-2006

0%

20%

40%

60%

80%

100%

0 5 10 15 20 25

Age

Rates of Attendance 1987Rates of Attendance 1997Rates of Attendance 2006

Conclusions

• The Chilean labor income and consumption age profiles, net producer and net taxpayer life-spans are close to the average of Latin American countries;

• The fairly extensive coverage of education, health, and social security public programs transfer substantial resources, especially to children and the elderly;

Conclusions (cont.)• Cash transfers (1/3 of all public transfers) are

mostly pensions that benefit mainly the elderly, and represent by far the largest per-capita government transfer program. It will continue to expand in the public budget because of recent reforms and population ageing, but:

• children and youth, as a group, receive as much in public benefits than the elderly. 2/3 of all transfers are in-kind, which are targeted to children and adults of all ages, and are much more progressive in their distributive incidence;

Conclusions (cont.)• All adults make and receive private transfers, but

in the net, they are important as a source of finance of consumption only for children;

• Adults rely heavily on their own labor income and asset reallocations (more than 2/5 of their consumption), a source that will probably continue to increase in the future;

• Public education expenditures have increased substantially and equity in the system has improved, but much progress can still be made in reducing socioeconomic gaps in attendance and the quality of education if the demographic dividend is to be taken advantage of.