National Transfer Accounts: Brazilian Case Cassio M. Turra Cedeplar/UFMG Bernardo L. Queiroz Cedeplar/UFMG Elisenda R. Perez Cedeplar/UFMG Berkeley, 01/19/2007

Goal of the Presentation 1 - Focus on material of book chapter –Show main results for Brazil (1996); Private transfer system Public transfer system Life cycle deficit –Emphasize generous public transfers to the elderly despite the young age profile; –Discuss potential reallocation differences by socioeconomic status (income level)

Background ● Population changes and intergenerational transfers: much interest comes from concern of aging effects; ● Main Concern: Social Security and Health Care Systems; ● The Brazilian Case : ● Rapidly population aging: 65+ from 3% in 1970 to 18% in 2050; ● Large public sector (%GDP in 2003): 12% on Elderly Support, 5.5% on education, 3.5% on health; ● Brazil is already facing impacts of population aging but has not yet solved young age related problems.

Population Age Structure ( )

Background (cont.) ● Brazil is distinct for combining: ● Large public sector: 12% GDP on Social Security, 5.5% GDP on Education, 3.5% GDP on Health in 2002 ● Generous public sector: universal & free healthcare, SS benefits granted to all workers, high replacement rates (civil servants). ● Most extreme inequalities in the world: Gini coefficient = 0.6 vs. 0.4 for Latin America ● High poverty rates: 23% to 45% are poor

Public Expenditures as % of GDP, Brazil,

● Living and Standards Measurement Study in Brazil (PPV 1996): Carried out between by IBGE and World Bank 4940 households; Representative 70% of population and 75% of GDP ; ● Administrative records: information on taxes and aggregate expenditures on public education, health, and social security. Estimation - Data

● For all individuals in the household; ● Income before taxes and fringe benefits from all jobs held during period of reference; ● Include both employment and self- employment (2/3 income, and 1/3 capital gains) Age Profile - Income

● Apply different rules depending on how data were collected; – Out-of-pocket expenditures on education and health were reported for all respondents; – Cigarettes and alcohol proportionally among adults aged 15 and older; – Children and adult apparel are distributed proportionally; – Residual expenditures are allocated by age using equivalence scales based on Engel's method (Deaton, 1997) Age Profile - Consumption

Public Expenditures HEALTH: – Based on health care utilization rates during period of reference. We are working on new estimates using administrative data. SOCIAL SECURITY: – Based on response about amount of benefits received during the survey's month. Unfortunately, we cannot distinguish between types of benefits (only if general or civil servant system). EDUCATION: –Based on enrollment rates for children and adults who reported being enrolled in public schools. We take into account the variation in per pupil expenditures by level of education.

Age Profile - Taxes First we assume that: – Federal Government funded by: income and social security taxes; – State Governments funded by: sales taxes; – Local Governements funded by: property taxes Based on share of each sphere of government of the revenue raised to fund each program, we determine how outflows are divided by tax; We use information on taxes reported in the PPV (income, social security and property), and consumption as proxy for sales taxes. Then, allocate by age according to age profiles of earnings.

Combining Public and Private Transfers

Familial: US$ Public: US$2.327 Direction and Size of Total Transfers in Brazil (1996) Age

Average Person Approach vs Socioeconomic Status It is also important to look at socioeconomic differences in intergenerational transfers; Brazil is important because: – Most extreme inequalities in the world – Gini coefficient = 0.6 vs. 0.4 for Latin America – High poverty rates: 23% to 45% are poor

Reallocation Differences by Socioeconomic Status It is also important to consider public transfers and relative well-being of dependents: –Preston (1984) –Becker and Murphy (1988) –Bommier et al (2004) Vast literature on determinants of poverty and inequality but not many on interactions between intergenerational transfers and inequality/poverty (Turra & Queiroz, 2005)

Results 1.Broad features of the reallocation system for the total population in Brazil (Turra & Rios- Neto 2001) 2.Lifecycle deficit for each socioeconomic group

Results 1.Broad features of the reallocation system for the total population in Brazil (Turra & Rios- Neto 2001) 2.Lifecycle deficit for each socioeconomic group 3.Broad features of the reallocation system for each socioeconomic group

Private Public Private Public

Results 1.Broad features of the reallocation system for the total population in Brazil (Turra & Rios- Neto 2001) 2.Lifecycle deficit for each socioeconomic group 3.Broad features of the reallocation system for each socioeconomic group 4.Public transfers received by each socioeconomic group

Summary ● Private inter vivos transfers have greater importance for children, especially those of wealthier families ● Children of poorer families rely more heavily on public transfers. ● Elderly consumption, for all educational groups, depends largely on public transfers ● Caution: analysis might be hindered by not using longitudinal data

What are we doing Reviewing and Finalizing estimates using single age; –Some issues we are facing will be dealt on monday-tuesday workshop Estimating health transfers using administrative data (in-patient and out- patient data for public health system); Finish to write the chapter.