This paper shows how changes in generational accounts relate to the generational incidence of fiscal policy. To illustrate the relationship, it uses the Auerbach-Kotlikoff Dynamic Life-Cycle Simulation Model to compare policy-induced changes in generational accounts with actual changes in generations' utilities. The paper considers a wide range of policies in closed and small open economies as well as economies with and without capital adjustment costs. In general, changes in generational accounts appear to provide fairly good approximations to generations' actual changes in utilities. The approximations are better for living generations. They are worse for policies that involve significant changes in the degree of tax progressivity and for economies with sizable capital- adjustment costs. Finally, generational accounting needs to be adjusted in the case of small open economies to take into account the fact that the incidence of corporate taxation is on labor. The method of adjustment is simply to allocate changes in corporate tax revenues to generations in proportion to their changes in labor supply.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5090.
Length: Date of creation: May 1997 Date of revision: Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER. Handle: RePEc:nbr:nberwo:5090
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Chapter
Hans Fehr & Laurence J. Kotlikoff & Willi Leibfritz, 1999.
"Generational Accounting in General Equilibrium,"
NBER Chapters,
in: Generational Accounting around the World, pages 43-72
National Bureau of Economic Research, Inc.
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Find related papers by JEL classification: H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
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