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Is the Deficit under Control? A Generational Accounting Perspective on Fiscal Policy and Labour Market Trends in Spain

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Author Info
Gemma Abío
Eduard Berenguer
Holger Bonin
Joan Gil
Concepció Patxot

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Abstract

According to the 2001 Spanish budgetary previsions, the government deficit is about to disappear. We analyse this matter within a generational accounting framework. Accounting for the recent expansive phase of the economic cycle, we find that current fiscal policy is also intertemporally balanced provided that the favourable present employment situation lasts. However, public finances remain under the pressure of the demographic cycle. Therefore, to achieve fiscal sustainability, the surpluses predicted for the next decades need to be accumulated, in order to finance deficits appearing during the baby-boomers' retirement. The improvement of employment has played an important role in this situation. We extend the standard generational accounting methodology incorporating tax and transfer age profiles by employment status. This permits us to analyse the possible intertemporal impact of several future employment developments. In particular, we assess the fiscal effects of an expected future increase in female labour force participation. We show that this trend does not necessarily improve the intertemporal government budget, as social insurance in Spain is not actuarially fair. Finally, we also assess the impact of a decline in unemployment to the natural rate of unemployment.

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Paper provided by FEDEA in its series Working Papers with number 2001-06.

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Handle: RePEc:fda:fdaddt:2001-06

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  1. Buiter, Willem H, 1997. "Generational Accounts, Aggregate Saving and Intergenerational Distribution," Economica, London School of Economics and Political Science, vol. 64(256), pages 605-26, November. [Downloadable!] (restricted)
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  2. Alan J. Auerbach, 1997. "Quantifying the Current U.S. Fiscal Imbalance," NBER Working Papers 6119, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts - A Meaningful Alternative to Deficit Accounting," NBER Working Papers 3589, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Laurence J. Kotlikoff & Bernd Raffelhuschen, 1999. "Generational Accounting around the Globe," American Economic Review, American Economic Association, vol. 89(2), pages 161-166, May. [Downloadable!] (restricted)
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  5. Joan Gil Trasfi & Concepcion Patxot Cardoner, 2000. "Viabilidad del sistema de pensiones y reformas por el lado de los ingresos: una aproximacion intergeneracional," Working Papers in Economics 64, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
  6. Holger Bonin & Bernd Raffelhüschen & Jan Walliser, . "Can Immigration Alleviate the Demographic Burden?," EPRU Working Paper Series 99-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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  7. Holger Bonin & Joan Gil & Concepció Patxot, 2001. "Beyond the Toledo agreement: the intergenerational impact of the Spanish Pension Reform," Spanish Economic Review, Springer, vol. 3(2), pages 111-130. [Downloadable!] (restricted)
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  8. Haveman, Robert, 1994. "Should Generational Accounts Replace Public Budgets and Deficits?," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 95-111, Winter. [Downloadable!] (restricted)
  9. 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, Blackwell Publishing, vol. 94(2), pages 303-18.
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  10. Raffelhuschen, B., 1999. "Generational Accounting in Europe," Norway; Department of Economics, University of Bergen 196, Department of Economics, University of Bergen.
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  1. Fernando Fernández-Rodríguez & Christian González-Martel & Simón Sosvilla-Rivero, . "Optimisation of Technical Rules by Genetic Algorithms: Evidence from the Madrid Stock Market," Working Papers 2001-14, FEDEA. [Downloadable!]
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  2. M. Collado & Iñigo Iturbe-Ormaetxe & Guadalupe Valera, 2004. "Quantifying the Impact of Immigration on the Spanish Welfare State," Asia-Pacific Financial Markets, Springer, vol. 11(3), pages 335-353, May. [Downloadable!] (restricted)
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  3. Gemma Abio Roig & Joan Gil Trasfi & Concepcion Patxot Cardoner, 2005. "La Ley de Estabilidad Presupuestaria en el largo plazo: efecto del ciclo demografico," Working Papers in Economics 126, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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