Do economic inequalities impact demographic dividend: Evidence from India

Abstract

The paper offers a new explanation and prediction of empirical relationship between income and consumption inequalities and demographic dividend. The framework for the analysis is a modified National Transfer Accounts (NTA)-based modelling of the first demographic dividend with inequality-adjusted or inequality-discounted economic support ratio (ESR). The model is tested for India by calculating the inequality-adjusted demographic dividend (or the growth rate of ESR) for the period 2005-2050. The results show that income inequality is not higher than consumption one for all ages and these age-specific economic inequalities have remarkable effects on (i) lowering the observed age-specific distribution of labour income for select ages and consumption for all ages and (ii) reducing the size and duration of demographic dividend due to lower growth rate of ESR. In addition, income inequality effects are found to be stronger than consumption inequality effects in terms of reducing the size of demographic dividend. These results imply that (a) growth effects of the first demographic dividend are upward-biased if unadjusted for the economic inequalities; (b) attainment of goals and targets of the reduction in inequalities under UN-SDGs 2030 by redistributive economic policies are contributory to the maximization of economic growth through the first demographic dividend; and (c) economic inequalities do impact the size and duration of demographic dividend. Subject to the availability of data, the modified approach to the first demographic dividend calculation in this paper is of relevance for comparative studies between India and other countries to draw lessons from mutual experiences and to establish the generality of results.