Demographic ageing and sustainability of fiscal policy: projections with a renewed generational accounting model
AbstractAn 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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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 609.
Date of creation: Feb 2000
Date of revision:
generational accounting; public investment; fiscal sustainability; budget deficit; public debt; intertemporal budget;
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