Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy

Abstract

This paper illustrates the technique of generational accounting, a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting. The authors illustrate why there is no 'correct' measure of the deficit and how generational accounting--estimating the fiscal burdens current policy places on different generations--provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit. Their calculations suggest that, despite recent changes, U.S. fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive.

Generational Policy

“…Diamond (1996), Buiter (1997), Shaviro (1997), Auerbach, Gokhale, and Kotlikoff (1994), Kotlikoff (1997), R affelhuschen (1998), and others have debated its merits.…”

(Un)sustainability and reform of the social security system in Brazil: a generational accounting approach

“…In this paper we used the Generational Accounting model developed by Auerbach et al (1991) to study both the intergenerational imbalance of the Brazilian public budget and the intergenerational imbalance in the social security systems. Based on this methodology, a wide set of reforms in the social security systems approved by FHC and Lula governments were simulated and its impacts on the future and present generations were obtained.…”

“…More specifically, in this work we use the Generational Accounting methodology developed by Auerbach et al (1991) to shed some light on the Brazilian intergeracional imbalance and on its relations with the RPPS and RGPS imbalances. Furthermore, it estimates the impacts of a wide set of reforms in the Brazilian social security -approved in the FHC and Lula governments -on the payments of net taxes of the Brazilian future generations.…”

Social Security Reform in the US: Lessons from Hungary

“…In fact, Auerbach et al (1994) developed the Generational Accounts to measure the extent of intergenerational redistribution. The core of the method is as follows: pick up a base year (denote it 0) and by fixing the prevailing distributional trends and projecting productivity trends, determine the net present value of transfers for each generation already born or yet to be born.…”