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Demographic ageing and sustainability of fiscal policy: projections with a renewed generational accounting model

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  • G.E. Hebbink
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    Abstract

    An updated version of the Nederlandsche Bank's generational accounting model is used to assess fiscal sustainability. The model gives net lifetime taxes for current and future generations. In addition, the same model is applied to make forecasts of budget deficit and debt in percentage of gdp. Without additional policy, both indicators - generational inequality and the deficit/debt measures - point at fiscal unsustainability in the long run. The model is extended with a feedback mechanism between investment and labour productivity growth. With this endogenous effect included, a budget neutral increase of public investments leads to less inequality between generations and eventually to a lower increase in the deficit and debt rates.

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    File URL: http://www.dnb.nl/binaries/wo0609_tcm46-145926.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 609.

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    Date of creation: Feb 2000
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    Handle: RePEc:dnb:wormem:609

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    Related research

    Keywords: generational accounting; public investment; fiscal sustainability; budget deficit; public debt; intertemporal budget;

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    1. G.E. Hebbink, 1997. "Generational accounting with feedback effects on productivity growth: an application to the public sector of the Netherlands," WO Research Memoranda (discontinued) 506, Netherlands Central Bank, Research Department.
    2. Bernd Raffelhuschen & Laurence J. Kotlikoff, 1999. "Generational Accounting around the Globe," American Economic Review, American Economic Association, vol. 89(2), pages 161-166, May.
    3. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
    4. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
    5. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational accounts: a meaningful alternative to deficit accounting," Working Paper 9103, Federal Reserve Bank of Cleveland.
    6. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
    7. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
    8. Wim P. M. Vijverberg & Chu-Ping C. Vijverberg & Janet L. Gamble, 1997. "Public Capital And Private Productivity," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 267-278, May.
    9. David Aschauer, 1988. "Is government spending stimulative?," Staff Memoranda 88-3, Federal Reserve Bank of Chicago.
    10. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational accounting: a new approach for understanding the effects of fiscal policy on saving," Working Paper 9107, Federal Reserve Bank of Cleveland.
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