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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