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Generational Accounting in General Equilibrium

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  • Hans Fehr
  • Laurence J. Kotlikoff

Abstract

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5090.

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Date of creation: Apr 1995
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Publication status: published as Finanzarchiv, Neue Folge, Band 53, pp. 1-27, (1996/97) Heft 1. (published by Mohr Siebeck Verlag, 1996).
Handle: RePEc:nbr:nberwo:5090

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  1. Franco, D. & Gokhale, J. & Guiso, L. & Kotlikoff, L.J. & Sartor, N., 1992. "Generational Accounting : The Case of Italy," Papers, Banca Italia - Servizio di Studi 171, Banca Italia - Servizio di Studi.
  2. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 213-24, January.
  3. Auerbach, A.J. & Gokhale, J. & Kotlikoff, L.J. & Steigum, E.Jr., 1993. "Generational Accounting in Norway: Is Norway Overconsuming its Petroleum Wealth?," Papers, Norwegian School of Economics and Business Administration- 06-93, Norwegian School of Economics and Business Administration-.
  4. 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.
  5. Cutler, David M, 1988. "Tax Reform and the Stock Market: An Asset Price Approach," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1107-17, December.
  6. Boll, Stephan & Raffelhuschen, Bernd & Walliser, Jan, 1994. " Social Security and Intergenerational Redistribution: A Generational Accounting Perspective," Public Choice, Springer, Springer, vol. 81(1-2), pages 79-100, October.
  7. Jagadeesh Gokhale & Bernd Raffelhuschen & Jan Walliser, 1994. "The burden of German unification: a generational accounting approach," Working Paper 9412, Federal Reserve Bank of Cleveland.
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