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Generational Accounting in Latvia: Time for Action

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  • Olaf J. de Groot

    () (Università Bocconi, Italy)

Abstract

The study seeks to analyse the long-term sustainability of fiscal policy in Latvia. Using a methodology called Generational Accounting, the net tax burdens of different currently living generations are calculated. Using these generational accounts, the residual ne tax burden of future generations is determined and it is determined that the current fiscal policy stance is not sustainable. The generational imbalance amounts to about 260% of GDP, which is near the European avarage. The necessary fiscal adjustments are relatively small, but still significant. An overall tax increase of 8.5% would be required to close the generational gap. Other policy options could be to decrease transfers by 17.5% or government consumption by 25.0%. Alternative scenarios all lead to significant generational imbalances as well. On the other hand, a number of factors not included in this study may aid Latvia in achieving generational fairness and long-term fiscal sustainability.

Suggested Citation

  • Olaf J. de Groot, 2007. "Generational Accounting in Latvia: Time for Action," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 7(1), pages 35-51, July.
  • Handle: RePEc:bic:journl:v:7:y:2007:i:1:p:35-51
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    Keywords

    Generational accounting; fiscal sustainability; Latvia;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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