Generational Accounting Around the World

Abstract

Willi Leibfritz outlines the purposes and features of generational accounting and reviews the main results of a project applying the technique to 17 countries. In most countries current policies are not sustainable. Future generations would have to pay higher net taxes than current generations. Demographic changes are the main source of the generational imbalances with current public debt playing a significant role in some countries. The paper includes estimates about the alternative expenditure cuts or revenue increases required for correcting the imbalances. It also argues that governments would alleviate the adjustment by reducing debt and deficit levels before the peak of population ageing. Leibfritz concludes with some suggestions for policy and methodological improvements. He notes that the availability of information about the implications of ageing and of alternative policy reactions is a precondition for the implementation of appropriate policies and that the computation of generational accounts on a regular basis can contribute to improve the decision making process. He suggests that differences from previous estimates should be thoroughly explained and that the base year data should be adjusted to remove the effects of cyclical or temporary factors. He also advises to complement the indicator of intergenerational imbalances with the debt to GDP ratio, which is more familiar to policy-makers.