Generational Accounting with Feedback Effects on Productivity Growth

Abstract

Gerbert Hebbink estimates generational accounts for the Netherlands. He presents a baseline scenario according to the standard generational accounting approach, in which constant productivity growth is assumed in the future. Forecasts for the traditional deficit and debt measures computed with the generational accounting model are also provided. The deficit would gradually increase. The debt would first decline and then substantially increase. Hebbink departs from the standard approach by introducing a link between the share of public investment in GDP and productivity growth: a policy that shifts expenditure from transfers to investment would increase productivity growth and reduce intergenerational imbalances. However, the link does not significantly affect the results: even doubling the ratio of public investment to GDP would not be sufficient to make fiscal policy sustainable.