Longer lives and fertility far below the replacement level of 2.1 births per woman are leading to rapid population aging in many countries. Many observers are concerned that aging will adversely affect public finances and standards of living. Analysis of newly available National Transfer Accounts data for 40 countries shows that fertility well above replacement would typically be most beneficial for government budgets. However, fertility near replacement would be most beneficial for standards of living when the analysis includes the effects of age structure on families as well as governments. And fertility below replacement would maximize per capita consumption when the cost of providing capital for a growing labor force is taken into account. While low fertility will indeed challenge government programs and very low fertility undermines living standards, we find that moderately low fertility and population decline favor the broader material standard of living

We thank Steven Caldwell for providing fertility data from CORSIM, his detailed micro simulation model of the U.S. economy. We thank Pierre Pestieau and other participants of the ISPE conference on Bequests and Inequality Across Generations, participants at the Federal Reserve System's Committee on Money and Macroeconomics, James Poterba, and two referees for very valuable comments. Laurence J.

This paper derives a concept of aggregate real income for a competitive economy in general equilibrium consisting of heterogeneous infinitely lived people and relates it to current and future consumption possibilities. An important characteristic of our measure of income, which we call Real Income, is that deflation is carried out using a consumption deflator rather than any price index of output. We suggest that it may be inappropriate to regard capital gains as income. We also present a coherent treatment of the effects of changes to the terms of trade on Real Income and explain the implications of this for resource-exporting economies. Copyright 2006 The Review of Economic Studies Limited.

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This paper presents the ®rst set of generational accounts for the United Kingdom. We ®nd that under our baseline scenario, in which pensions are price indexed and health expenditure grows modestly, the imbalance in UK generational policy is small when compared with other leading industrial countries like the United States, Japan, and Germany. However, under an alternative policy scenario, where all social bene®ts are wage-indexed and health care spending is increased, there is a larger ®scal bill left for future generations to pay. In this case, achieving generational balance would require much stronger medicine.The rapid ageing of population and the existence of large unfunded social security systems in most of the industrialised countries have made the traditional indicators of ®scal policy (the government de®cit and debt) increasingly out of line with the long-term stance of the public ®nances.New methods have been proposed that try to capture the intertemporal dimension of many of the current ®scal measures, and to evaluate their effect on both the public sector solvency and the redistribution of resources between generations. This in turn may help in understanding how ®scal policies are actually affecting savings, investments and growth.Generational accounting is one of these new methods of long-term ®scal planning and analysis. 1 It seeks to answer the following closely related questions. First, how large a ®scal burden does current policy imply for future generations? Second, is ®scal policy sustainable without major additional sacri®ces on the part of current or future generations or major cutbacks in government purchases? Third, what alternative policies would suf®ce to