In this paper, we investigate the consequences of the rise in educational attainment on the US generational accounts. We build on the 1995 accounts of Gokhale and al. (1999) and disaggregate them per schooling level. We show that low skill newborns are characterized by a negative generational account (-15.4% of their lifetime labor income) whilst medium and high skill newborns have positive accounts (26.8% and 32.3% of their lifetime labor income). Compared to Gokhale et al., our baseline forecast is more optimistic. Nevertheless, the rise in educational attainment is not strong enough to restore the generational balance. The current fiscal policy generates a long-run deficit. Balancing the budget requires increasing taxes (by about 1.2%) or reducing transfers (by about 2.7%). These results are rather robust to growth and discounting assumptions as well as to the treatment of education spending. They are sensitive to assumptions about the schooling level of future generations.
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Paper provided by EconWPA in its series Public Economics with number
0303002.
Length: 25 pages Date of creation: 10 Mar 2003 Date of revision:
18 Mar 2004 Handle: RePEc:wpa:wuwppe:0303002
Note: Type of Document - Acrobat PDF; prepared on PC; to print on A4; pages: 25 ; figures: included Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H6 - Public Economics - - National Budget, Deficit, and Debt J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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