Accounting for Growth Effects of Age Structure Transition through Public Education Expenditure: New Macroeconomic Evidence from India

Abstract

This article quantifies the growth effects of age structure transition through current public education expenditure. Using the National Transfer Accounts’ (NTA) First Demographic Dividend (FDD) model, growth effects are accounted by the impact of current public education expenditure on economic support ratio (ESR) and labour productivity through human capital investments. The results offer new macroeconomic evidence. Age structure transition reduces the education dependency ratio (EDR) by all levels of education but the highest in the elementary education. This impacts on a long-term decline in enrolment in elementary education where the current gross enrolment ratio (GER) is close to 100 per cent and a decline in current public education expenditure. Other things being equal, the resultant potential savings, or the availability of extra budgetary resources, is a new way of financing the investment requirements for secondary and higher education with the aim of increasing national economic growth through human capital investments. In particular, growth effects are shown to be positive, higher and longer up to 2050, if the current public education spending is reallocated more for the secondary and higher education. Surprisingly, growth effects are explained less by the ESR than labour productivity. This justifies a higher human capital investment to enhance labour productivity for attainment of higher economic growth. The afore- mentioned macroeconomic framework, results and implications are of general relevance for other developing countries in South Asia and elsewhere in the world. JEL Classification: E65, H52, J11

Improving economic security for older persons by public pension schemes: evidence from National Transfer Accounts for India

“…Age profile of private consumption others is calculated using the Equivalent Scale Method. Aggregate and per capita age profiles of public and private consumption by education, health and others is calculated for 2004–05 as in Narayana ( 2018 ) Age profile in 2011–12 is calculated by up-scaling the age profile of macro consumption in 2004–05 to aggregate control for the consumption in 2011–12 (a) All aggregate or macro controls are derived and measured by the data in Central Statistical Office ( 2015 ) and Central Statistical Office ( 2018a ). (b) Except for public education and public health, age allocation rule for all other aggregate controls follow the NTA’s general methodology [United Nations ( 2013 )].…”

“…Aggregate and per capita age profiles of labour income are calculated for 2004–05 as in Narayana ( 2018 ). That is based on individual income from wages and salaries and household income from self-employment (i.e.…”

“…Age profile of private consumption others is calculated using the Equivalent Scale Method. Aggregate and per capita age profiles of public and private consumption by education, health and others is calculated for 2004–05 as in Narayana ( 2018 )…”

Is Public Education Expenditure Pro-cyclical In India?

“…Finally, the Indian education system can be classified generally into elementary, secondary and higher education. Higher education may be distinguished further by types of education that include general (university and higher education), technical, medical, agricultural, management and legal education (Narayana, 2019). The report of the Central Advisory Board of Education (CABE) committee on 'Financing of Higher and Technical Education' (2005) recommended, if 50 percent of the total education expenditure is allocated to elementary education, the remaining 50 percent of the total education expenditure has to be shared equally between secondary and higher & technical education (i.e.…”

“…There is also an argument in favour of reallocation of resources (current and future) from lower levels of education to higher levels, if there is a demographically induced decline in the enrolment of basic levels of education 11 (Narayana, 2019). The above argument may be considered pragmatic if (and only if) the allocation of resources to basic levels of education is based on the current levels of enrolment and also the allocated resources are sufficient to provide acceptable standards of quality education.…”