NTA Bulletin

Population age structures are changing all over the world, with fewer children and more old people than in the past. Analysis of these demographic changes and their likely consequences can help policymakers develop sustainable programs in areas of healthcare, education, and pensions as well as policies that foster economic growth and equity among generations and age groups. The National Transfer Accounts (NTA) project addresses the impact of demographic change on economic growth, inequality, public finances, and the economic resources available to children and the elderly. The project includes research teams in 35 countries, with core activities based at the East-West Center and the Center on the Economics and Demography of Aging at the University of California, Berkeley. By providing estimates of income, consumption, saving, and other resource flows for each age group, NTA adds an important dimension to measures of Gross Domestic Product (GDP) and other widely used indicators that are critical for formulating economic policy. IN 2011, the NTA project initiated the NTA Bulletin, a series of short publications that summarize the results of NTA research for a broad policy audience. This series is produced with support from the International Development Research Centre (IDRC) of Canada.

BULLETIN 5

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Lower-Income Countries and the Demographic Dividend NTA Bulletin, No. 5, December 2012

Over the past 60 years, population age structures have been changing everywhere in the world. As the share of national populations at working ages has grown relative to the share of dependent children, many of the world’s fastest-growing economies have enjoyed a substantial demographic dividend that has helped accelerate economic growth. Lower-income countries are at the early stages of this demographic transition. Important work lies ahead if they are to take full advantage of a changing age structure to accelerate economic growth. The timing and magnitude of each country’s demographic dividend depend on demographic and economic factors and the policies that influence them. This issue of the NTA Bulletin explores whether lower-income countries can experience a first demographic dividend—a significant boost to their economic growth as the share of the population in the working ages increases. Equally important is whether the resources freed up by the first dividend can support investment in human and physical capital that leads to a second dividend.

BULLETIN 4

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How well do societies meet the consumption needs of all age groups? NTA Bulletin, No. 4, June 2012

A steady, adequate level of consumption is a critical measure of wellbeing at every stage of life. Working-age adults support their consumption largely through labor income. But an important concern for families and policymakers alike is to support the education, healthcare, and other consumption needs of children and the elderly, who generally earn little income of their own.

Until recently, little has been known about consumption patterns among specific age groups or how these might be affected as population age structures change over time. But now the National Transfer Accounts (NTA) project is bringing together and analyzing information on private and public consumption at every age, covering economies at widely varying stages of economic development.

In general, NTA findings show that societies meet the consumption needs of broad population age groups--children, working-age adults, and the elderly--fairly equitably. This general pattern holds whether societies are rich or poor and whether people rely largely on families, governments, or financial markets to support their consumption. There are some interesting variations, however. The consumption of children is lowest, relative to the consumption of working-age adults, in poor, high-fertility societies. As low fertility results in smaller numbers of children, governments and families alike have an opportunity to invest more in each child's health and education. NTA findings show that some economies are meeting this challenge better than others.

In some, but not all, high-income economies, consumption rises very steeply among the oldest age groups, while in middle- and low-income economies, consumption tend to be flat throughout old age. High per capita consumption by the elderly poses two important policy questions. First, are current consumption patterns based on the values of a society, or do they reflect waste and inefficiency, particularly within healthcare systems? And second, will current high consumption costs be sustainable as elderly populations expand?

BULLETIN 3

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The economic consequences of population aging: Report on a technical policy seminar. NTA Bulletin 3, December 2011.

On 19–20 September 2011, the United Nations Population Fund (UNFPA) and the East-West Center (EWC) held a Technical Policy Seminar on the Economics of Aging. This issue of the NTA Bulletin summarizes presentations and discussion from the seminar.

NTA measures the direct effect of population age structure on economic growth in terms of the support ratio—the effective number of producers relative to the effective number of consumers. The support ratio changes in a systematic way over the demographic transition, as first the working-age population and then the elderly population increase in size relative to other age groups. Over the next 20 years, many developing economies will experience large increases in their support ratios as their working-age populations expand. One immediate challenge for policymakers is to insure that the increase in the potential workforce leads to greater employment in productive jobs. In industrialized economies, where the support ratio has reached its peak or has already begun to decline, policymakers face two challenges. The first is how best to sustain economic growth with a decline in the number of workers relative to other age groups, and the second is how to sustain or reform public programs that address the needs of growing elderly populations. Seminar participants discussed the impact of population aging on pension and healthcare systems, including forecasts of rising expenditures and the pros and cons of various approaches to contain costs. Much of the discussion also focused on the macro-economic effects of population aging, including structural changes in markets and the impact of older populations on patterns of saving and investment. The participants did not agree on one important question: Whether higher saving or higher consumption is better for economic growth. They did agree, however, that increased saving in the midst of a deep recession is unlikely to lead to more rapid economic growth and that creating a favorable investment environment is essential to meeting the needs of an aging society.

BULLETIN 2

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Transferring resources between age groups: What roles do governments play? NTA Bulletin 2, May 2011.

Over the past 100 years, most governments have steadily expanded social programs that provide cash and services to children and the elderly. These programs are funded by taxes paid largely by the working-age population. Thus changes in the relative size of the three age groups—children, working-age adults, and the elderly—have a significant impact on the size of government programs and on the resources available to pay for them.

The National Transfer Accounts (NTA) project helps shed light on government opportunities and challenges by providing estimates and forecasts of taxes that will be paid and public benefits that will be received by all age groups given current tax and benefit policies. In this way, NTA estimates the size of the fiscal adjustment that countries will need to make in the future in response to changes in population age structure.

In fact, the age profile of public benefits is likely to shift over time—for example, with increased investment in education for children and increased investment in healthcare for the elderly. Pension reforms may also shift some of the burden of population aging away from public programs toward family resources and the use of saving and investment income. NTA data can be combined with these alternative policy scenarios to produce medium- and long-term fiscal forecasts.

BULLETIN 1

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The Spanish edition of Bulletin 1 is now available:

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National Transfer Accounts: A new way to look at population change and economic growth. NTA Bulletin 1, January 2011.

In all modern societies, children and the elderly consume more resources than they produce through their labor, while working-age adults produce more than they consume. What makes this economic lifecycle possible is the flow of resources over time and across generations through a complex of social, economic, and political institutions.

The National Transfer Accounts (NTA) project provides estimates of labor income, consumption, saving, and the flow or resources among age groups, revealing striking similarities and differences between countries. In both Brazil and Mexico, for example, families provide most of the consumption needs of children. But the elderly in Brazil receive large public pensions, supporting a steep rise in consumption during old age, while the elderly in Mexico work longer and support themselves largely through asset income. Their consumption declines in old age.

Changes in population age structure pose special challenges for policymakers. As fertility decline results in fewer children, will families and governments use their resources to improve education and healthcare for each child? As working-age populations expand relative to other age groups, will the public and private sectors keep pace with expanding opportunities for productive employment? And as elderly populations increase, will public pension and healthcare programs be sustainable? NTA provides data and analysis on more than 30 economies to help answer these important questions.

We hope that you will find this policy brief useful. You may order printed copies by sending an e-mail to contact@ntaccounts.org. We look forward to hearing from you and welcome your feedback on this first issue of the NTA Bulletin.