Two NTA indicators we are thinking about using in the

wall chart for Latin America and the Caribbean

Tim MillerNTA Working Group on Indicators

June 8, 2010Honolulu, Hawaii

First Indicator:Intergenerational Tax Rate

Question:

• How large a tax would be needed to finance these periods of dependency?

Answer:

The Intergenerational Tax Rate=

Aggregate LCD for Youth and Elderly / GDP

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Why is this indicator called the Intergenerational Tax Rate? Why not call it by its proper definition, the Aggregate Life Cycle Deficit of Youth and Elderly divided by GDP?

Second Indicator:Benefit Generosity Rate

Question:

• What is the annual cost of educating the average child? in Brazil? in the United States? in Burkino Faso?

• How does the average cost of educating a child compare to the average costs of providing financial support to elderly?

Answer:

The Benefit Generosity Ratio=

Average Education, Health, or Pension Benefit

as a share of GDP/working-age adult

Expenditures/GDP can be expressed as product of demography and policy.

DEMOGRAPHIC DEPENDENCY RATIO FOR EDUCATION, HEALTH, AND PENSIONS

Population at-risk(e.g., school-age population)

÷Working-age Population

BENEFIT GENEROSITY RATIO FOR

EDUCATION, HEALTH, AND PENSIONS

Benefits per person÷

GDP per working-age person

B/GDP = bgr * P(6-21)/P(20-64) • B = Aggregate educational expenditures.• bgr = average benefit per school-age person

relative to economic output per working-age adult = B/P(6-21) / GDP/P(20-64).

• P(6-21) = School-age population (ages 6 to 21).

• P(20-64) = Working-age population.

Two nice features

• International comparisons of 3 programs: education, health, and pensions.

• Good for projections: we can project the demography easily and can tell interesting stories about policy through the BGRs.

THE ELDERLY POPULATION AND PUBLIC PENSION SPENDING PER OLDER ADULT

Mahalo