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Indicators for Measuring Fiscal Sustainability: A Comparison of the OECD Method and Generational Accounting

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  • Ulrich Benz
  • Stefan Fetzer

Abstract

Based on an empirical application for Germany, we compare two methods of measuring fiscal sustainability: the generational-accounting approach and the OECD method. In a first step, we show that the two methods can be transformed into one another. Hence, the indicators of generational accounting can be used for the OECD method and vice versa, thus enlarging the set of sustainability indicators for both methods. In a second step, we discuss these indicators with respect to their theoretical deficiencies, tangibility, and sensitivity. Finally, we come to the conclusion that a combination of indicators stemming from both approaches can give a more general and understandable description of fiscal sustainability and satisfy a strictly defined condition of sustainability at the same time.

Suggested Citation

  • Ulrich Benz & Stefan Fetzer, 2006. "Indicators for Measuring Fiscal Sustainability: A Comparison of the OECD Method and Generational Accounting," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(3), pages 367-391, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200609)62:3_367:ifmfsa_2.0.tx_2-i
    DOI: 10.1628/001522106X153428
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    1. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 55-110, National Bureau of Economic Research, Inc.
    2. Auerbach, Alan J & Gokhale, Jagadeesh & Kotlikoff, Laurence J, 1992. " Generational Accounting: A New Approach to Understanding the Effects of Fiscal Policy on Saving," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(2), pages 303-318.
    3. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-44, March.
    4. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 73-94, Winter.
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    Citations

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    Cited by:

    1. Moog, Stefan & Raffelhüschen, Bernd, 2011. "Ehrbare Staaten? Tatsächliche Staatsverschuldung in Europa im Vergleich," Argumente zur Marktwirtschaft und Politik 115, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    2. Peters, Fabian & Raffelhüschen, Bernd & Reeker, Gerrit, 2017. "Ehrbare Staaten? Update 2016: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 137, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    3. Moog, Stefan & Raffelhüschen, Bernd, 2015. "Ehrbare Staaten? Update 2014: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 130, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    4. Benz Ulrich & Hagist Christian, 2008. "Konjunktur und Generationenbilanz – eine Analyse anhand des HP-Filters / Business Cycle Effects on Generational Accounting – An Analysis using the HP-Filter," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(4), pages 299-316, August.
    5. Christian Hagist & Stefan Moog & Bernd Raffelhüschen & Johannes Vatter, 2009. "Public Debt and Demography - An International Comparison Using Generational Accounting," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(04), pages 29-36, January.
    6. Christian Hagist & Stefan Moog & Bernd Raffelhüschen & Johannes Vatter, 2009. "Public Debt and Demography - An International Comparison Using Generational Accounting," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(4), pages 29-36, 01.
    7. Cirsten Roppel & Ulrich Roppel, 2012. "Generative Income Distribution and Generational Conflict," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(14), pages 26-33, July.
    8. Manabu Shimasawa & Kazumasa Oguro & Minoru Masujima, 2014. "Population Aging, Policy Reforms, and Lifetime Net Tax Rate in Japan: A Generational Accounting Approach," Discussion papers ron258, Policy Research Institute, Ministry of Finance Japan.
    9. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (ed.), 2011. "Herausforderungen des demografischen Wandels. Expertise im Auftrag der Bundesregierung," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75371, March.
    10. Nicolas Afflatet, 2018. "The Impact of Population Ageing on Public Debt: A Panel Data Analysis for 18 European Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 68-77.
    11. Janusz Jablonowski & Christoph Mueller & Bernd Raffelhüschen, 2011. "A fiscal outlook for Poland using Generational Accounts," NBP Working Papers 85, Narodowy Bank Polski.
    12. Koch, Daniel, 2011. "Wirksame Begrenzung von Staatsverschuldung auf europäischer Ebene," Discussion Paper Series 114, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    13. Raffelhüschen, Bernd & Rudolph, Karen & Will, Sebastian, 2021. "Ehrbare Staaten? Update 2021: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 160, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    14. Stefan Fetzer & Stefan Moog, 2021. "Indicators for Measuring Intergenerational Fairness of Social Security Systems—The Case of the German Social Health Insurance," Sustainability, MDPI, vol. 13(10), pages 1-18, May.
    15. Jabłonowski, Janusz & Müller, Christoph & Raffelhüschen, Bernd, 2010. "A fiscal outlook for Poland using generational accounts," FZG Discussion Papers 47, University of Freiburg, Research Center for Generational Contracts (FZG).
    16. Christian Hagist & Bernd Raffelhüschen & Alf Erling Risa & Erling Vårdal, 2013. "Long-Term Fiscal Effects of Public Pension Reform in Norway – A Generational Accounting Analysis," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 38, pages 1-2.
    17. Moog, Stefan & Raffelhüschen, Bernd, 2014. "Ehrbare Staaten? Update 2013: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 125, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    18. Lewe Bahnsen & Stefan Fetzer & Fabian Franke & Christian Hagist, 2018. "Gone with the Windfall - Germany‘s Second LTC Strengthening Act and its Intergenerational Implications," WHU Working Paper Series - Economics Group 18-05, WHU - Otto Beisheim School of Management.
    19. Hagist, Christian & Vatter, Johannes, 2009. "Measuring fiscal sustainability on the municipal level: A German case study," FZG Discussion Papers 35, University of Freiburg, Research Center for Generational Contracts (FZG).
    20. Peters, Fabian & Raffelhüschen, Bernd & Reeker, Gerrit, 2019. "Ehrbare Staaten? Update 2018: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 144, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    21. repec:ces:ifodic:v:7:y:2009:i:4:p:14567035 is not listed on IDEAS
    22. Moog, Stefan & Raffelhüschen, Bernd & Reeker, Gerrit, 2016. "Ehrbare Staaten? Update 2015: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 133, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    23. repec:noj:journl:v:38:y:2013:p:2 is not listed on IDEAS
    24. André Decoster & Xavier Flawinne & Pieter Vanleenhove, 2014. "Generational accounts for Belgium: fiscal sustainability at a glance," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 663-686, November.

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    More about this item

    Keywords

    fiscal sustainability; generational accounting; OECD method; sustainability indicators;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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