Impact of SP Schemes Simulation Results

1. Impact of SP SchemesSimulation Results Bazlul H Khondker Department of Economics, Dhaka University and South Asian Network on Economic Modeling October 27, 2013

2. Salient Features of Current Programme • Coverage (HIES 2010) • Household (25%); Poor (34.4%); • Transfer amount/month/beneficiary TK. 488

3. What is poverty and cost impact of two universal schemes? • We assume 10% operating expense and hence effective transfer amounts were TK. 720 for OAA and TK. 270 for Child Grant.

4. Simulation Framework Micro-simulation Model: • HIES 2010 data has been transformed into an appropriate format to develop a Micro-simulation model to carry out exercises using different of transfers amounts. • More specifically, the exercise focus on the static impact of a SP scheme on the consumption and expenditure in beneficiary households and the potential impact on the poverty rate and poverty gap. Costing Model: Age-cohort population projection data has been incorporated with into the costing model to calculate the long term cost of various SP schemes.

5. Universal Child Grant (0-4) and OAA (65+) • SP Schemes with Estimated Coverage • Child Grant (0-4) • Household (39%) and Poor (59%) • OAA (65+) • Household (17%) and Poor (18%) • Child Grant (0-4) and OAA (65+) • Household (49.5%) and Poor (67%)

6. Costs of a tax-financed child grant up to 2050:For ages 0-4

7. Costs of a tax-financed pension up to 2050:For all over-65s Assumes GDP per capita growth rate of only 2.4% per year

8. Macro impacts of micro intervention • Illustrated with the aid of a universal OAA. The total programme cost is estimated to be 67.9 billion BDT, or 0.65 percent of GDP in 2013. • In this illustration, OAA is a direct transfer to households with a person aged 65 or over. Within the context of the SAM multiplier model, 67.9 billion BDT is then transferred among the 6 representative household groups, according to their share in old age population. • As the OAA is tax-financed, a relevant question is: what is the opportunity cost of 67.9 billion OAA? • The issue is addressed by exploring the potential impact of channelling the same amount of resource into an alternative investment project such as infrastructure development or equipment installation.

9. A SAM Structure Endogenous Block

10. Endogenous and Exogenous Accounts of a SAM Model Accounts Endogenous Exogenous Government Production Activity + Commodity Corporation Factors of Production Rest of the World Households Consolidated Capital

11. Macro Impact simulations; SAM model Investment in construction and machinery (50:50) (67.9 billion BDT) • Measuring change in: • Domestic output by major activities • Agriculture • Manufacturing • Construction • Transport • Services • Value added by factors • Labour • Capital • Land • Consumption by Household type • Rural land based • Rural non-farm • urban Y3= Commodity Y1=Output of Domestic Activity Y2 = GDP (Factor Income) Y4 = Household Income OAA transfer to households (67.9 billion BDT) Transmission Mechanisms and Impact Paths of Intervention into Activities and Households

12. Impacts on major activities

13. Impact on factor income

14. Impact on household consumption

15. Conclusion • Expansion of coverage – should be it be universal? • Increasing the transfer amounts – double of the current levels? • All these desirable move would depend on fiscal space. • Perhaps a pragmatic step (with regard to coverage) would be an approach between universal coverage and poor relief targeting.