CONSIDERACIONES MEDIOAMBIENTALES

Higher worker productivity can directly benefit the government.

The fiscal impact of greater human capital spending depends as much on tax structure as on government involvement in boosting human capital spending and on the impact on productivity. Personal income taxes per capita in Cambodia and Timor-Leste, for example, are projected to increase by at least 3%. In other economies, the projected impact on government revenues may be insignificant despite large gains in labor productivity.

There are many different ways governments can intervene to increase human capital spending aside from a universal increase in government provisions. Governments may increase human capital spending for targeted vulnerable groups while maintaining current amounts for the mainstream. An alternative strategy is to improve the efficiency with which public spending is translated to human capital without increasing appropriations. These strategies are not mutually exclusive, but may be combined to create more targeted strategies.

To further investigate the issue, this subsection considers three types of targeted strategies. Strategy 1 assumes that governments increase human capital spending by 20% per person for each age group.

2.3.1 Simulated impact of human capital spending on productivity growth and inequality, selected Asian economies

Country

% Change in inequality Productivity growth rate (%) by income quintile

Human capital Labor income (poorest)Q1 Q2 Q3 Q4 (richest)Q5 All groups

Middle income Bangladesh –6.7 –4.1 7.5 5.7 4.0 2.4 0.6 2.7 Cambodia –7.2 –4.5 7.4 6.1 4.6 2.8 0.8 3.1 India –3.7 –2.1 3.4 3.3 2.8 2.0 0.3 1.6 Indonesia –2.3 –1.3 2.3 2.2 1.9 1.3 0.2 1.0 Malaysia –0.3 –0.2 0.3 0.3 0.3 0.2 0.0 0.1 Mongolia –5.8 –3.5 5.7 4.9 3.9 2.5 0.6 2.4 Philippines –4.3 –2.6 4.7 4.2 3.3 2.1 0.4 1.9 Thailand –2.9 –1.7 2.6 2.6 2.5 1.9 0.3 1.3 Timor-Leste –4.5 –2.4 3.5 3.5 3.3 2.8 0.6 2.0 Viet Nam –4.1 –2.5 4.7 3.9 2.9 1.7 0.3 1.7 Others

Nepal (low income) –5.1 –3.1 4.7 4.3 3.5 2.4 0.5 2.2

ROK (high income) –5.1 –3.1 4.9 4.3 3.5 2.3 0.5 2.1

ROK = Republic of Korea.

This strategy assumes no change in spending efficiency. Strategy 2 assumes a 20% improvement in the efficiency of translating public spending inputs to human capital, while the amount of public spending is kept at the baseline value. Strategy 3 considers both a 20% increase in government human capital spending and a 20% improvement in efficiency. These three scenarios are combined with three different government targeting schemes—a universal program where every household benefits from the public interventions on human capital, a targeted program that is available only to households belonging to the lower 40% by income, and a targeted program available only to those in the lower 60% by household income.10

In all the strategies considered, government revenues are projected to increase with expansion of the tax base, with labor income per capita growing by as much as 3%–5% in some scenarios in certain economies. Increasing both the efficiency and amount of public human capital spending seems to increase in tax collection per capita more than the interventions implemented separately if they could be added together. There is only a modest decline in effective tax rates, indicating household labor income will grow faster than the amount the government collects from these households in taxes.

The fiscal impact of public spending on human capital per capita depends on the government strategy employed to raise human capital. In general, strategies that improve efficiency without increasing inputs have little or no positive effect on the fiscal rate of return from public human capital spending. Increasing public spending is projected to lower fiscal rate of return, though rates remain positive in all scenarios.

In summary, simulations in individual economies using the NTA database show that increasing human capital spending promotes inclusive growth by improving labor productivity and narrowing income inequality. Government-led human capital investment appears to be more inclusive than human capital accumulation led by the private sector.11 _{Lower-income economies and poorer households within} economies tend to benefit more from increased human capital spending, which argues for early investment. Interestingly, investing in human capital not only promotes growth and equity but may also improve government budgets in developing Asia in the long run.

This outcome is not guaranteed, as it depends partly on how human capital spending is transformed to actual productive labor in each economy. Other government policies and the economic environment are also important. Moreover, the government interventions on human capital spending that the simulation exercise considered—either a universal increase in human capital spending, a targeted increase only for vulnerable groups, and improved efficiency in human capital spending—are not mutually exclusive and can be combined to create more targeted strategies.

The aging of Asia’s population further strengthens the case for human capital accumulation and puts a spotlight on quality of education. Intuitively, more productive workers can offset the negative economic impact of having fewer workers. The share of the elderly population is rising across developing Asia as a whole, though the speed and current status of population aging varies a lot across the region. Populations in

India and the Philippines are still relatively young, while the PRC and Thailand have significantly older populations. Richer economies such as the ROK and Singapore,

meanwhile, are at an advanced stage of demographic transition. Notwithstanding such heterogeneity, there is a clear regional trend toward older populations, and even in many younger Asian populations, demographic dividends associated with relatively large working-age cohorts are set to decline in the foreseeable future (ADB 2011).

The pace of demographic transition is very rapid in some Asian economies, especially in East Asia. A transition that took rich Western economies more than a century is occurring in these economies in just a few decades. For example, from 2000 to 2050, the old-age dependency ratio will increase by a factor of 6 in the ROK and by a factor of 4 in the PRC. According to Ha and Lee (forthcoming), in the absence of significant human capital investments, many aging middle-income Asian economies may see their growth rates fall sharply. At a minimum, deteriorating demographics should add a sense of urgency to improving Asia’s human capital.