Generational and National Transfer Accounting: A Review of the Long-run Fiscal Sustainability in Mexico Iv´an Mej´ıa-Guevara*
[email protected] F´elix V´elez Fern´andez Varela**
[email protected] *Postdoctoral Scholar CEDA University of California, Berkeley **General Secretary National Population Council of Mexico
East-West Center Summer Seminar on Population, June 11, 2010
Outline
1. Motivation 2. Generational accounting 3. Inputs and assumptions 4. Preliminary results
1. Motivation
1. Recent pressures in the public finances of Mexico after the financial turmoil of 2008 2. Historical low taxation levels in Mexico (around 10% of GDP) 3. Expected reduction in oil revenues in the near future (which represent around 30% of the total government revenues) 4. Proliferation of social programs, high unemployment in formal sectors, informality and low productivity 5. Pension reform for formal workers in the private sector in Mexico: 1995 6. Pension reform for workers in the public sector: 2008 7. Sustainability of current tax-benefit systems
2. Generational accounts
Ny ,k =
k+ω ∑
Ts,k Ps,k (a + r )−s−t ,
(1)
s=max(t,k)
where Ts,k stands for the projected average net tax payments to the government made in year s by the generation born in year k, whereas Ps,k stands for the number of surviving members of the cohort in year s who were born in year k and ω the maximum length of life. A set of generational accounts is a set of Ny ,k , one for each existing and future generations.
2. Generational accounts... Intertemporal budget constraint: ω ∑
Nt,t−s +
s=0
∞ ∑
Nt,t+s =
s=t
∞ ∑
Gs (1 + r )−(s−t) − Wtg
(2)
s=t
We then have to estimate: I
The net wealth minus explicit debt of the public sector
I
The present value of the government consumption
I
The net present value of the GAs for the present generations
We assume: I
Real productivity rate, g=1.5%
I
Real interest rate, r=5%
I
base year= 20044
2. Generational accounts...
Generational imbalance: defined as the ratio of the difference in the net payment between the future generations and the age0 cohorts at the benchmark year at the percentage term, and the magnitude of the increase in the tax burden, proportional to that under the current policy, required to attain the longrun budgetary balance.
2. ...FSR
Fiscal support ratio: ∑ω pa τ a τ ˆ , fsr = = ∑aω t a pa ta
(3)
3. Data processing and assumptions
3. Data processing and assumptions
Figure: Age distribution of the population: 2004-2050
3. Data processing and assumptions
Figure: Age distribution of the population: 2050-2100
3. Data processing and assumptions Revenues allocated through GAs Income tax Asset tax Payroll VAT Excise taxes Alcohol, beer and other Tobacco Gasoline and diesel Tax on new vehicles Import tax Export tax Tax on vehicle property Other Seigniorage
764,603.9 345,217.5 182,815.7 162,401.8 285,022.7 85,245.1 14,007.3 17,903.2 53,334.5 5,086.6 29,521.0 0.2 13,007.8 1,503.0 34,283.2
Table: Public sector revenues (2004 million Mexican pesos)
3. Data processing and assumptions
Revenues used for the estimation of the net debt Accessories Rights (except oil) Products Aprovechamientos Other income Oil revenues
1,006,710.4 5,515.8 16,591.4 5,406.5 84,809.8 310,361.0 584,025.9
Table: Public sector revenues (2004 million Mexican pesos)
3. Data processing and assumptions
Public debt stock Historical balance of financial liabilities (SHRF) Complementary information: Primary expenditure Primary balance Budget balance
3148032 1595781.0 189012.1 -17817.1
Table: Public sector debt and primary balance (2004 million Mexican pesos)
3. Data processing and assumptions Transfers allocated through Gas Health Direct transfers Procampo Oportunidades Electric residential subsidy
264039.3 171207.1 92832.2 13117.5 25651.7
Government consumption 1331741.8 Programmable expenditure* 730369.4 ADEFAS and revenue sharing to states and municipalities 268828.6 Education 332543.8 ∗ Excludes health, education consumption and direct transfers Table: Public sector expenditures (2004 million Mexican pesos)
10000 0 −10000 −20000
mexican pesos
20000
3... Age-specific transfers
net public transfers inflows outflows
0
10
20
30
40
50
60
70
80
90
age
Figure: Age distribution of public inflows and outflows for the NTA framework
3... Age-specific transfers cash transfers
4 3 2 1 0
relative to the average man age 40
5
6
men women
0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 age
3... Age-specific transfers 60
pensions
40 30 20 10 0
relative to the average man age 40
50
men women
0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 age
3... Age-specific transfers payroll tax
1.0 0.5 0.0
relative to the average man age 40
1.5
men women
0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 age
3... Age-specific transfers vat
0.8 0.6 0.4 0.2 0.0
relative to the average man age 40
1.0
men women
0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 age
3... Age-specific transfers
1.2
tobacco
0.8 0.6 0.4 0.2 0.0
relative to the average man age 40
1.0
men women
0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 age
3... Age-specific transfers excise: gasoline
0.8 0.6 0.4 0.2 0.0
relative to the average man age 40
1.0
men women
0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 age
4. Preliminay results Generational accounts for men and women (2004 million Mexican pesos)
present generation men and women age total 0 92.6 1-4 398.8 5-9 559.6 10-14 633.9 15-19 743.0 20-24 849.1 25-29 902.5 30-34 890.2 35-39 804.8 40-44 662.9 45-49 488.7 50-54 301.2 55-59 138.5 60-64 6.6 65-69 -96.6 70-74 -149.5 75-79 -146.1 80-84 -117.1 85-89 -90.1 90-94 -66.3 95-99 -40.9 FG 168.9 GI 82%
health -37.0 -142.8 -178.4 -191.9 -218.8 -247.9 -265.9 -275.7 -286.6 -298.0 -304.5 -305.4 -299.2 -286.5 -269.0 -245.7 -212.5 -171.4 -135.9 -104.9 -70.0
direct T -14.9 -64.6 -95.6 -98.7 -94.3 -98.2 -109.9 -122.6 -136.1 -149.8 -162.2 -169.6 -171.3 -173.7 -175.9 -161.0 -126.7 -87.8 -55.7 -25.8 -3.3
asset 31.0 133.9 196.7 238.0 293.7 343.8 361.3 350.9 310.9 246.9 175.0 116.4 66.8 32.9 15.7 5.6 2.5 0.7 0.0 0.0 0.0
payroll 21.0 88.0 127.9 156.3 201.2 263.1 323.8 360.9 372.1 362.2 329.1 263.4 201.4 146.9 89.6 44.2 21.2 8.8 3.5 0.7 0.0
VAT 66.7 276.5 361.3 365.7 374.6 384.6 385.9 377.0 360.7 339.5 313.5 282.2 247.6 211.3 181.4 157.8 132.0 106.3 81.3 54.4 29.6
alcohol 3.3 13.8 18.9 20.9 23.3 25.3 25.9 25.1 23.7 21.9 19.5 16.7 13.9 11.2 9.1 7.6 6.4 5.1 3.6 2.0 0.8
tobacco 2.2 9.3 13.7 16.8 20.2 21.9 21.9 21.4 20.7 19.7 17.4 14.4 11.8 9.5 7.7 5.8 3.9 2.3 1.4 0.8 0.3
gasoline 10.3 42.8 57.3 61.5 66.9 72.0 73.9 72.5 69.0 64.0 57.5 49.3 40.4 31.9 24.9 20.2 15.9 11.7 8.0 4.5 1.7
new v 0.9 3.8 5.5 6.7 8.3 9.3 9.4 9.1 8.3 7.1 5.7 4.0 2.3 1.2 0.4 0.0 0.0 0.0 0.0 0.0 0.0
other 3.3 12.8 15.4 14.6 14.3 14.5 15.0 15.8 16.7 17.6 18.1 18.5 19.3 19.6 18.8 15.7 11.1 7.2 3.7 1.9 0.0
segniorage 5.8 25.3 36.8 44.0 53.6 60.6 61.1 55.8 45.4 31.9 19.6 11.2 5.6 2.2 0.8 0.2 0.1 0.0 0.0 0.0 0.0
4. Preliminay results Generational accounts for men and women (2004 million Mexican pesos)
present women age 0 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 FG GI
generation total 73.4 318.3 442.4 487.9 549.7 594.4 589.3 540.9 457.6 346.5 215.5 95.8 -3.3 -83.8 -141.5 -163.9 -155.1 -122.8 -97.3 -73.2 -44.4 134.2 82%
health -38.8 -150.0 -188.4 -202.7 -229.3 -257.7 -275.8 -286.3 -297.7 -309.5 -316.2 -316.8 -310.2 -296.5 -277.4 -252.1 -216.7 -173.7 -137.0 -105.5 -70.2
direct T -14.6 -63.9 -95.6 -99.1 -91.7 -89.2 -94.8 -100.9 -106.2 -109.6 -110.9 -114.5 -120.2 -128.0 -141.9 -145.2 -126.9 -98.1 -68.4 -32.8 -4.3
asset 21.6 93.8 138.3 167.1 203.5 233.2 236.3 222.7 192.3 145.5 91.6 52.9 25.4 10.3 4.7 2.0 0.2 0.0 0.0 0.0 0.0
payroll 7.6 32.2 47.6 58.7 74.8 96.3 114.8 117.4 111.8 102.5 86.0 67.6 47.7 27.5 14.3 8.5 3.4 1.1 0.3 0.0 0.0
VAT 70.6 293.2 386.6 395.0 404.9 412.2 409.5 397.3 380.6 359.0 329.1 293.2 258.6 223.6 193.5 169.6 143.4 116.5 86.2 52.4 26.1
alcohol 5.7 23.6 31.8 34.3 37.2 39.6 40.1 38.9 36.9 34.1 30.3 25.7 21.2 17.0 13.6 11.5 9.7 7.6 5.2 2.9 1.3
tobacco 2.3 9.7 14.3 17.5 20.7 21.7 21.1 20.3 19.5 18.5 16.0 13.1 10.7 8.6 7.0 5.2 3.1 2.1 1.7 1.1 0.3
gasoline 10.8 45.0 60.7 65.3 70.7 75.3 76.2 73.8 70.0 64.8 57.5 48.7 40.1 32.2 25.7 21.7 18.3 14.3 9.7 5.5 2.5
new v 0.7 2.9 4.3 5.2 6.4 6.6 6.0 5.2 4.3 3.4 2.7 1.8 1.1 0.7 0.3 0.0 0.0 0.0 0.0 0.0 0.0
other 3.5 13.6 16.2 15.1 14.5 14.3 14.9 16.1 17.3 18.4 18.7 19.3 20.3 20.0 18.6 14.9 10.4 7.3 5.1 3.2 0.0
segniorage 4.2 18.2 26.5 31.7 38.0 42.1 41.1 36.4 28.9 19.4 10.6 5.0 2.1 0.7 0.3 0.1 0.0 0.0 0.0 0.0 0.0
4. Preliminay results Generational accounts for men and women (2004 million Mexican pesos)
present men age 0 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 FG GI
generation total 110.8 475.7 672.1 775.3 935.2 1,113.5 1,233.0 1,258.0 1,169.3 996.0 779.1 522.7 294.1 107.7 -45.1 -132.4 -134.9 -109.4 -79.9 -55.8 -35.4 202.6 82%
health -35.3 -135.9 -168.8 -181.4 -208.3 -237.8 -255.3 -264.5 -275.0 -285.9 -292.2 -293.0 -287.1 -275.3 -259.3 -238.0 -207.2 -168.3 -134.4 -104.0 -69.6
direct T -15.2 -65.2 -95.5 -98.3 -97.0 -107.5 -125.9 -145.4 -167.5 -192.0 -216.7 -229.1 -227.4 -224.8 -214.9 -179.7 -126.4 -74.1 -37.7 -15.2 -1.8
asset 39.9 172.3 252.6 306.7 383.3 458.6 493.3 485.9 435.5 353.6 263.7 185.0 112.2 58.2 28.3 9.8 5.5 1.6 0.0 0.0 0.0
payroll 33.8 141.2 205.0 250.8 326.9 436.3 544.5 617.3 645.3 635.6 587.6 474.8 370.1 280.6 176.0 86.6 43.4 19.0 8.0 1.9 0.0
VAT 63.1 260.5 337.1 337.4 344.5 355.9 361.0 355.6 339.8 318.9 296.9 270.4 235.4 197.5 167.5 143.8 117.7 92.7 74.4 57.5 35.2
alcohol 1.0 4.5 6.5 7.9 9.5 10.6 10.9 10.6 9.9 9.0 8.0 7.0 5.9 4.7 3.9 3.0 2.3 1.9 1.4 0.6 0.1
tobacco 2.1 9.0 13.2 16.1 19.7 22.2 22.8 22.5 21.9 20.9 18.9 15.9 13.0 10.5 8.6 6.6 4.8 2.7 1.1 0.4 0.2
gasoline 9.9 40.6 54.0 57.8 63.1 68.6 71.5 71.1 68.0 63.2 57.4 50.0 40.7 31.5 24.1 18.5 12.9 8.2 5.6 2.9 0.5
new v 1.1 4.6 6.7 8.2 10.3 12.1 13.0 13.2 12.6 11.1 9.0 6.3 3.7 1.7 0.5 0.0 0.0 0.0 0.0 0.0 0.0
other 3.1 12.1 14.6 14.1 14.1 14.6 15.1 15.5 16.1 16.8 17.4 17.5 18.2 19.2 19.0 16.6 11.9 6.9 1.7 0.0 0.0
segniorage 7.4 32.1 46.6 56.0 69.0 79.8 82.2 76.3 62.7 44.9 29.2 17.9 9.4 3.9 1.4 0.4 0.1 0.0 0.0 0.0 0.0
%
fsr status quo
0
10 20 30 40 50 60 70 80 90 100
4. Preliminary results
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Figure: Fiscal support ratio (red) and increaments in taxes neccesary to preserve the status quo (blue).
income taxes ssc excise and VAT
5
10
15
20
%
25
30
35
40
4. Preliminary results
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Figure: Impact of individual taxes and social contributions.
education health cash pensions
0
5
10
15
%
20
25
30
35
40
4. Preliminary results
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Figure: Impact of transfer components.