THE NATIONAL TRANSFER ACCOUNTS FOR KENYA
Germano Mwabu Moses K. Muriithi
Reuben G. Mutegi
University of Nairobi January 10, 2009
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1. Introduction• Fertility rate in Kenya has declined
significantly over the past three decades from 8.1 in the early 1980s to a low of about 5.0 (KDHS 2003) .
• Kenya’s total fertility rate is higher than the Africa’s average TFR of 4.7 (UN 2007).
• Despite the decline in fertility life expectancy in Africa remains low, at 49 years (in Kenya, it’s 50; in Nigeria, 44; and less than 40 in countries severely affected by HIV/AIDS).
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Intro…
• The NTA framework can generate information that can be used to guide investments in human capital; to further reduce fertility and improve living conditions in the continent.
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2. Estimates of NTA profiles using 1994 survey
• Labor income profiles
• Public and private consumption profiles, with macro controls
• Life cycle deficit
• Tax profiles
(Brief comparisons are made between Kenyan and Nigerian profiles)
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Labor income profiles
• Figure 1 below shows the labor income profiles for both the wage earners and non-wage earners in 1994.
• On average, earning of labor income in Kenya starts at an early age of 18 years.
• There is no retirement in the self-employment sector, in contrast to the situation in the formal wage sector, where wage income drops sharply after age 55.
• Maximum mean labor income is attained at around age 40.
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Figure1: Labor profile (Kenya, 1994)
Per Capita Adjusted Smoothed Wage and Self-Employed Labor Income (Kenya, 1994)
-10000
0
10000
20000
30000
40000
50000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Age
Ken
ya S
hillin
gs
Wage Imputed Self-Employed IncomeUnimputed Self-Employed Income Total labor income
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Public consumption age profile
• Figure 2 shows estimated profiles of per capita public consumption in education, health care and public other consumption.
• As expected, education expenditure is pronounced between the age of 3 and 25 years.
• Highest at between age 6 and 19 years, meaning at primary and secondary education levels.
• Public health consumption has the horizontal J-shape after age 20.
• Public other consumption has a horizontal age- profile.(Kenya’s per capita public consumption > Nigeria’s).
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Figure: 2 Public consumption Profile (Kenya,1994)
Per Capita Public Consumption, Kenya, 1994
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 10 20 30 40 50 60 70 80 90+
Age
Ksh
illin
gs
Public Consumption
HealthEducation
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Public consumption Kenya and Nigeria
Composition of Public Consumption in Health and Education
0.000
0.010
0.020
0.030
0.040
0.050
0.060
0.070
0 10 20 30 40 50 60 70 80 90+
Age in years
Nor
mal
ised
to a
vera
ge la
bour
in
com
e ag
es 3
0-49
yea
rs
Kenya Education (Public) Kenya Health (Public)
Nigeria, Education (Public) Nigeria, Health (Public)
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Private health consumption Profile
• Private health consumption has a horizontal a J-shape.
• Children below the age of 10 are more likely to be sick and to seek medical care relative to individuals at other age groups.
• Private health consumption increases sharply from age 45 due to incidence of age-related ailments.
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Figure 3: Private health consumption Profile (Kenya, 1994)
Adjusted Per Capita Private Health (Kenya, 1994)
-
50
100
150
200
250
300
350
400
450
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Age
Ken
ya S
hilli
ngs
Adjusted Smooth
Adjusted Unsmoothed
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Private Education profile
• The dip at age 13 in Figure 4 could be associated with an influx of students from private primary school to government secondary schools.
• The sharp rise after age 13 is related to private spending in private secondary schools and colleges.
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Figure 4: Private education consumption expenditure
Adjusted Per Capita Private Education (Kenya, 1994)
0
50
100
150
200
250
300
350
400
450
500
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81
Age
Ke
ny
a s
hillin
gs
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Private other consumption profiles
• This has a pronounced hump at ages
25-39 years.
• After formal school, most individuals at that age bracket are in wage or mixed employment.
• Demand for durable goods and food is also likely to be high.
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Figure 5: Private other consumption expenditure
Adjusted Per Capita Private Other Consumption (Kenya, 1994)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80Age
Keny
a Sh
illin
gs
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Total Private consumption profile
• Private consumption between ages 10-23 is driven by private education and other consumption.
• After age 23, the total private consumption consists of private health and other consumption, as private education expenditure ceases.
• Kenya private per capita consumption < Nigeria
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Figure 6: Total private consumption profile
Per Capita Private Consumption, Kenya, 1994
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
0 10 20 30 40 50 60 70 80
Age
Ksh
illin
gs
Other
HealthEducation
Private Consumption
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Figure 7: Private consumption Kenya and Nigeria
Components of Private Consumption in Health and Education
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0 10 20 30 40 50 60 70 80 90+
Age in years
Nor
mal
ised
to a
vera
ge la
bour
inco
me
ages
30-
49
Kenya, Educ (Private) Kenya, Health (Private) Nigeria, Educ (Private) Nigeria, Health (Private)
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Figure 8: Total consumption Kenya and Nigeria
Total Consumption, Kenya and Nigeria
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0 10 20 30 40 50 60 70 80 90+
Age in years
Nor
mal
ised
to a
vera
ge la
bour
inco
me
ages
30
-49
Kenya Nigeria
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Total consumption vs labor income profiles
• Compares total labor income and total consumption.
• Difference between the per capita income earned by individuals and their corresponding per capita consumption in 1994, by age.
• Surplus or deficit consumption.
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Figure 9: Total consumption vs. Labor income, Kenya
Per Capita Consumption and Labor Income, Kenya, 1994
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
0 10 20 30 40 50 60 70 80 90+
Age
Kshillings
Consumption
Labor Income
Private Consumption
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Life-cycle Deficit Profile
• In Kenya, child dependency ends at around age 23 while old age dependency starts at around age 60.
• The surplus life cycle period is between ages 23 and 60 years.
• LCD peaked at age 40.
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Figure 10: Life-cycle Deficit, Kenya
LIFECYCLE DEFICIT (Kenya, 1994)
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
60000
0 10 20 30 40 50 60 70 80
age
Keny
a shi
llings
per capita consumption
labor income
lifecycle deficit
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Life-cycle deficit…
• The surplus labor income is transferred across individuals through households, governments, and through non government organizations.
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Figure 11: Life-cycle deficit…
Per Capita Lifecycle Deficit, Kenya, 1994
- 35,000
- 30,000
- 25,000
- 20,000
- 15,000
- 10,000
- 5,000
0
5,000
10,000
15,000
20,000
0 10 20 30 40 50 60 70 80 90+
Age
KS
hillings
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Figure12: Life cycle deficits, Kenya and Nigeria
Life Cycle Deficit for Nigeria and Kenya
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
0 10 20 30 40 50 60 70 80 90+
Age in years
Nor
mal
ised
to L
abou
r In
com
e ag
es 3
0-49
yea
rs
Kenya Nigeria
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3. Tax profiles
• The asset income tax profile is pronounced after age 25. • Dip in the asset income tax profile between ages 50 and
57 could be due to asset re-allocation by household heads through the disposal of assets to finance private consumption.
• The consumption tax follows the consumption age profile.
• At early ages (ages 1-20), the government transfers surplus is driven by consumption tax, while at age 20-57, the three taxes determine the size of the transfer surplus.
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Figure13: Tax profiles, Kenya
Per Capita Tax Profiles (Kenya, 1994)
-6000
-4000
-2000
0
2000
4000
6000
8000
0 10 20 30 40 50 60 70 80
Age
Consumption TaxLabor Income TaxAsset Income TaxTransfers surplus
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Conclusion and further work
Conclusion• NTA is an essential tool for generating the
information required to design national social protection systems.
• It can show how much the government should spend on health, education and other basic needs at different ages.
• It could guide investments in reproductive health or in institutions that empower an economy to earn demographic dividends.
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Conclusion…
• Further work
-- Refining of tax profiles
-- Estimation of intra and inter household transfers
-- Asset-based reallocations
-- Constructing NTA using household data from other years (1997, 2005, 1992? 1982?)
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Thank you.
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