THE NATIONAL TRANSFER ACCOUNTS FOR KENYA Germano Mwabu Moses K. Muriithi Reuben G. Mutegi University of Nairobi January 10, 2009 1.

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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