The Fiscal Impact of Demographic Change in Ten Latin American Countries
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Nicaragua were to raise its relative spending per student and enrollment rates to Japanese levels, its aggregate spending on education would have to be more than double that of Japan. Due to past and future changes in fertility and mortality, the age structure of the Nicaraguan population is projected to change fundamentally in the coming decades, with large declines in the proportion of children. The resulting decline in demographic burden in supporting the secondary population could lead either to steep declines in aggregate spending or alternatively allow for large increases in investment in education. A recent Economic Commission for Latin America and the Caribbean study of the impact of demographic change on secondary school education showed that future reductions in education dependency ratios throughout the Latin American region will substantially ease demographic constraints on educational financing, bringing within reach universal secondary education in virtually all Latin American countries. In addition, more ambitious educational goals such as reaching OECD-country levels of investment per student are also increasingly within reach for a growing number of countries (ECLAC 2009).
The Influence of Demography and Policy on Public Education This section presents an overview of public spending on education in 10 Latin American countries and selected OECD countries. For the purposes of this simple analysis, we can measure the contribution of economics/policy via a single variable: the Benefit Generosity Ratio (BGR)—which is the product of two policy variables—participation rates and benefits per participant. The BGR is the relative cost of benefits per person at risk. For example, the BGR for secondary education is the cost of educating a student aged 12–17. The BGR measures the generosity of the benefit in each country relative to the average productivity of the working-age population (GDP/working-age population). The BGR can be thought of as roughly the fraction of the average worker’s income that is consumed by the average person who is in the appropriate age range for consuming education, health care, or pension benefits. The numerator of the BGR is obtainable from the NTA data on expenditure by age of recipient. The influence of demography on aggregate spending is reflected in the sector dependency ratio, defined as the ratio of the population “at risk” of receiving the benefit (education, pensions, and health care) to the workingage population. Aggregate spending is the product of these two factors, as seen in Equation 2.