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Generational Accounting in General Equilibrium

In: Generational Accounting around the World

  • Hans Fehr
  • Laurence J. Kotlikoff
  • Willi Leibfritz

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 ränge 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 progessivity 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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This chapter was published in:
  • 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, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6685.
    Handle: RePEc:nbr:nberch:6685
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.orgEmail:


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    1. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Auerbach, A.J. & Gokhale, J. & Kotlikoff, L.J. & Steigum, E.Jr., 1993. "Generational Accounting in Norway: Is Norway Overconsuming its Petroleum Wealth?," Papers 06-93, Norwegian School of Economics and Business Administration-.
    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. Franco, D. & Gokhale, J. & Guiso, L. & Kotlikoff, L.J. & Sartor, N., 1992. "Generational Accounting : The Case of Italy," Papers 171, Banca Italia - Servizio di Studi.
    5. Laurence Kotlikoff, 1993. "From deficit delusion to the Fiscal Balance Rule: Looking for an economically meaningful way to assess fiscal policy," Journal of Economics, Springer, vol. 7(1), pages 17-41, December.
    6. Boll, Stephan & Raffelhuschen, Bernd & Walliser, Jan, 1994. " Social Security and Intergenerational Redistribution: A Generational Accounting Perspective," Public Choice, 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.
    8. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 73-94, Winter.
    9. Cutler, David M, 1988. "Tax Reform and the Stock Market: An Asset Price Approach," American Economic Review, American Economic Association, vol. 78(5), pages 1107-17, December.
    10. Laurence Kotlikoff, 1993. "From deficit delusion to the Fiscal Balance Rule: Looking for an economically meaningful way to assess fiscal policy," Journal of Economics, Springer, vol. 58(1), pages 17-41, December.
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