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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

  • Bonin, Holger

    ()
    (ZEW Mannheim)

  • Abio, Gemma

    (affiliation not available)

  • Berenguer, Eduardo

    ()
    (University of Barcelona)

  • Gil, Joan

    (affiliation not available)

  • Patxot, Concepció

    ()
    (University of Barcelona)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 306.

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Length: 41 pages
Date of creation: Jun 2001
Date of revision:
Publication status: published in: Investigaciones Economicas, 2003, 27 (2), 309-341
Handle: RePEc:iza:izadps:dp306

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Keywords: fiscal policy; Spain; Generational accounting; labour market trends;

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References

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  1. 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.
  2. Auerbach, Alan J., 1997. "Quantifying the Current U.S. Fiscal Imbalance," National Tax Journal, National Tax Association, vol. 50(3), pages 387-98, September.
  3. 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.
  4. Robert Haveman, 1994. "Should Generational Accounts Replace Public Budgets and Deficits?," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 95-111, Winter.
  5. 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.
  6. Alan J. Auerbach & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "Introduction to "Generational Accounting around the World"," NBER Chapters, in: Generational Accounting around the World, pages 1-8 National Bureau of Economic Research, Inc.
  7. Holger Bonin & Joan Gil Trasfi & Concepcion Patxot Cardoner, 1999. "Beyond the Toledo agreement: the intergenerational impact of the spanish pension reform," Working Papers in Economics 54, Universitat de Barcelona. Espai de Recerca en Economia.
  8. 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.
  9. Raffelhuschen, B., 1999. "Generational Accounting in Europe," Norway; Department of Economics, University of Bergen 196, Department of Economics, University of Bergen.
  10. Alan J. Auerbach & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "Generational Accounting around the World," NBER Books, National Bureau of Economic Research, Inc, number auer99-1.
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Cited by:
  1. 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.
  2. Bonin, Holger & Patxot, Concepció & Souto, Guadalupe, 2013. "Cyclically neutral generational accounting," ZEW Discussion Papers 13-099, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Concepció Patxot & Elisenda Rentería & Miguel Romero & Guadalupe Souto, 2012. "Measuring the balance of government intervention on forward and backward family transfers using NTA estimates: the modified Lee arrows," International Tax and Public Finance, Springer, vol. 19(3), pages 442-461, June.

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  2. Eduard Berenguer Comas in Wikipedia Spanish ne '')

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