Window of Opportunity: demographic changes and

socioeconomic consequences in Brazil

Bernardo L. Queirozlanza@cedeplar.ufmg.br

IPC-IG – BrasiliaNovember / 2011

Research is part of the National Transfer Accounts project

Co-authored with Cassio Turra from Cedeplar/UFMG

National Transfer Account (NTA) Project

An international effort led by Professors Ronald Lee (University of California, Berkeley) and Andrew Mason (University of Hawaii) comprised of 35 national research teams (and over 130 researchers).

www.ntaccounts.org

Funded by:– US National Institute of Aging– John D. and Catherine T.

MacArthur Foundation– International Development

Research Center (supporting Latin American & African countries)

– The United Nations Population Fund

– Japan’s Academic Frontier Project and the Ministry of Education, Culture, Sports, Science, and Technology.

NTA Project

NTA Members Asia-Pacific Americas Europe Africa

Australia Argentina Austria Kenya

China Brazil Finland Mozambique

India Canada France Nigeria

Indonesia Chile Germany Senegal

Japan Colombia Hungary South Africa

Philippines Costa Rica Italy

South Korea Jamaica Slovenia

Taiwan Mexico Spain

Thailand Peru Sweden

Vietnam United States

Uruguay

NTA Brazil(Cedeplar - UFMG)

Cássio M. Turra (Team leader)

Bernardo L. Queiroz

Izabel G. Marri (former Ph.D. student)

Elisenda R. Perez (former Ph.D. student)

http://sites.google.com/site/ntabrazil/

Brazil works closely with other Latin American countries and Mozambique.

National Transfer Accounts (NTA)

• A “satellite account” of National Accounts which adds two new features:① Measurement of national economic activity by

age (based on survey and administrative data).

Labor Income per Person in High and Middle Income Countries

From Tim Miller

Relative Consumption per Person in High and Middle Income Countries

Education

Health

From Tim Miller

National Transfer Accounts (NTA)

• A “satellite account” of National Accounts which adds two new features:① Measurement of national economic activity by

age.② Accounting of the intergenerational flow of

resources through social institutions (the state, the market, and the family). Family transfers (within and between households, intervivos and bequests) are quite large and are unmeasured in National Accounts.

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

From Tim Miller

Sources = Uses

Labor IncomeLabor Income

Asset IncomeAsset Income

Transfers from Government

Transfers from Government

Transfers from FamilyTransfers from Family

SavingsSavings

TaxesTaxes

Transfers to FamilyTransfers to Family

ConsumptionConsumption

NTA flow identity for each individual

InstitutionsFinancialMarkets

State

Family

From Tim Miller

“We are inherently social, and are sustained not only by our own efforts, but also by transfers from those of others who support us directly or indirectly.” Ron Lee (Sept, 2011)

New book and seminar

VIII NTA Workshop“Intergenerational

Approaches to Social and Economic Policy”

• Belo Horizonte, Dec 5-9• Rio de Janeiro, Dec 12 More info: www.ntaccounts.org

E-book available IDRC website (hard copy also available from Edward Elgar, Amazon, …)http://www.idrc.ca/EN/Resources/Publications/Pages/IDRCBookDetails.aspx?PublicationID=987

Back to the main idea of the presentation

Main Ideas• Not long ago, we worried about rapid population

growth and the high number of children in Third World populations;

• These days there are great concerns about the impact of rising numbers of elderly;

• Changes in population age structure interact with the economic life-cycle affecting income per capita growth;

• Two demographic dividends:– Increase in the share of working age population– Related to the creation of wealth that arises from

population aging.

Main Objectives

• What is the size of the demographic dividends in Brazil?

• How long it will last and compare to other countries?

• How could public policies provide adequate conditions to the realization of the dividends?– Investigate public (fiscal) and private (familial)

dividends

Motivation

• Brazil is unique for combining:– Rapid population aging: share of the population

65+ from 3% in 1970 to 20% in 2050;– Large public sector (as % of GDP): investments in

the elderly;• Investments in the public pension system started

before than the universalization of the educational system and are much larger;

Demographic Transition in Brazil

Public Expenditures in Brazil, 1933 to 2001

Ratio Public Pension / Public EducationBrazil is still relatively young country, but…..

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Brazil USA Japan Sweden Finland Austria Spain Costa Rica Chile Uruguay

Background• Dividends in Brazil are (somewhat) ignored by

policy-makers and still face a lot of debate in the academia:– Carvalho and Wong (1995): first to point out the

possible impacts of rapid demographic changes;– Turra and Rios-Neto (2001): fiscal gains of

demographic changes wouldn’t last long;– Rios-Neto (2004): estimated impact on income

growth; – Soares (2008): discussed and estimated the impacts

of population change on education outcomes.

Estimating the First Dividend

Refers to the income growth due to the increase in the share of population that is of working age. That is, there are more potential producers that consumers in the economy.

It is measure by the ration between effective consumers and effective producers in the economyEffective Consumer: population weighted by

consumption age profileEffective Producer: population weighted by labor

income age profile

Necessary Data

• 1) Labor and consumption age profiles: estimated in the NTA project;

• 2) Population age distribution: 1970 to 2050

Population Age Structure

Income and Consumption Profiles0 3 6 9

12

15

18

21

24

27

30

33

36

39

42

45

48

51

54

57

60

63

66

69

72

75

78

81

84

87

90

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

7000.00

Labor Income and Consumption Profile, Brazil - 1996

Labor Income Consumption

Age

R$

Income and Consumption Age Profiles, Brazil 2002-2003

0 2 4 6 81

01

21

41

61

82

02

22

42

62

83

03

23

43

63

84

04

24

44

64

85

05

25

45

65

86

06

26

46

66

87

07

27

47

67

88

08

28

48

68

89

09

29

49

69

81

00

0

1000

2000

3000

4000

5000

6000

7000

8000

Income Health Cons. Education Cons. consump other

Age

Re

ais

(2

00

3)

-1

-0.5

0

0.5

1

1.5

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91

Nor

mal

ized

life

cyc

le d

efici

t

Age

Brazil

Comparing life cycle deficit across countries

First Demographic Dividend

• The growth in the support ratio is the difference between the growth in the number of effective producers minus the growth in the number of effective producers. That is, the growth of the working age population;

• Given the labor productivity, an increase in the working age population increases the output per effective consumer

Estimates of the First Dividend, B ICS

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

-1.000

-0.500

0.000

0.500

1.000

1.500

Brazil China India South Africa

Duration of First Dividend

Industrial

East Asia and Southeast Asia

South Asia

Latin America

Sub-saharan Africa

Middle East and North Africa

Transitional

Pacific Islands

Brazil

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

29.7

46.6

60.7

47.9

49.7

52.3

33.6

48.6

50

Source: Mason (2005) and author´s calculation´s for Brazil data

Public and Private Dividend

• Private Dividend: effect of increases in household support ratio. It takes into account beneficiaries of private inter-vivo transfers.

• Public Dividend (Fiscal): is given by changes in the ratio between effective tax payers and effective beneficiaries from public transfers.

Public and Private Net Transfers

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88

Age

pensions

health

education

other (non-age related)

Distribution of the public transfers in Brazil (as % of total consumption)

Public and Private First Dividends

Second Dividend• It is related to the creation of wealth that arises in

response to population aging.• With rising elderly population, consumption in the future

can only be maintained by accumulating capital or transfer wealth. Accumulation of wealth also influences economic growth.

• Elderly hold more wealth (composition effect), and living longer increases demand for wealth (behavioral effect).

• It is reflected by the rate of growth of productivity - increases in capital-labor ratio

• It is different from the first dividend because it is not temporary since capital deepening has permanent effect on income.

Estimates of second dividend

Estimated growth from dividend and observed, Brazil, 1970-2010

Concluding remarks

• Population age structure in Brazil is changing rapidly.• Government, families, and individuals should be

prepared for the possible impacts (positive and negative).

• Paper shows that demographic changes might favor economic growth when appropriate policies and institutions are in place

• Results indicate that Brazil is failing to take advantage of the positive impacts of demographic dividend. First dividend is almost over. The first dividend was short because of the rapid decline in fertility.

Concluding remarks (cont)

• The fiscal dividend will last a very short period of time.

• Giving current structure of public transfers in Brazil, the government will face an increasing fiscal expenditure, what might harm economic growth.

• Second dividend is also in check, because large public transfers might affect propensity to save since individuals expected to consume at older ages financed by public transfers here.

NTA – new agenda

• 1) Inequality: studying transfers by socioeconomic status (education or income);

• 2) Gender (accounts by gender, studying hh headed by females, etc);

• 3) Including of time-use in the analysis;• 4) Simulation, backcasting, forecasting; • 5) Wealth, bequests;• 6) others.

Shares of consumption not covered by labor income: Family Transfers, Public Transfers and Asset income (part not saved) sum to 1.0

Ron Lee, UC Berkeley, Sept 26 2011 43

AT

ES

SE

Europe & US

Latin America

Asia

1/3

1/3

1/3

2/3

2/3

2/3

Assets

Publictransfers

Familytransfers

TH

JP

KR

TW

PH

CL

MX

US

SI

BRDE

CR

CN

IN

HU

Extra slidesfor questions about PBF, BPC and others

Não, já que foram criados programas tanto para crianças quanto para idosos e seu volume é menor

-800

1,600 2,400 3,200 4,000 4,800 5,600 6,400 7,200 8,000

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Pensions (per capita)

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Pensions (aggregate)

-0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

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Pensions (utilization rate)

-800

1,600 2,400 3,200 4,000 4,800 5,600 6,400 7,200 8,000

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Pensions (payment per benef)

Previdência Social = alta concentração no último quintil, mas pouca variação na cobertura por SSE

-50

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Education (per capita)

-5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

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Education (aggregate)

-0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

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Age Groups

Education (utilization rate)

-600

1,200 1,800 2,400 3,000 3,600 4,200 4,800 5,400 6,000 6,600

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Education (payment per beneficiary)

Educação Pública = pagamento por beneficiário favorece mais ricos, apesar de menor utilização

-50

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Health (per capita)

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10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

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1,200 1,800 2,400 3,000 3,600 4,200 4,800 5,400 6,000 6,600

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Health (payment per beneficiary)

Saúde Pública = gastos per capita com menos ricos é maior, em função da maior taxa de utilização

Lee and Mason September 19, 2011

Tradeoff between fertility and human capital spending, 23 NTA countries

0 1 2 3 4 5 60

1

2

3

4

5

6

KE

NGIN

ID

JP

PH

KR

TW

THBR

CL

CR MX

UY

ATFI

DE

HU

SL

ES

SE

US

CN

Total fertility rate

Hum

an c

apita

l spe

ndin

g pe

r ch

ild

Note: Human capital spending is years of labor income required for health and education to raise one child.