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Generational Policy and the Macroeconomic Measurement of Tax Incidence

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  • Juan Carlos Conesa
  • Carlos Garriga

Abstract

In this paper we show that the generational accounting framework used in macroeconomics to measure tax incidence can, in some cases, yield inaccurate measurements of the tax burden across age cohorts. This result is very important for policy evaluation, because it shows that the selection of tax policies designed to change generational imbalances could be misleading. We illustrate this problem in the context of a Social Security reform where we show how fiscal policy can affect the intergenerational gap across cohorts without impacting the distribution of welfare. We provide a more accurate procedure that only measures changes in generational imbalances derived from policies with real effects.

Suggested Citation

  • Juan Carlos Conesa & Carlos Garriga, 2008. "Generational Policy and the Macroeconomic Measurement of Tax Incidence," Working Papers 373, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:373
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    References listed on IDEAS

    as
    1. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving," Journal of Economic Perspectives, American Economic Association, pages 57-74.
    2. 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.
    3. Kotlikoff, Laurence J., 2002. "Generational policy," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 27, pages 1873-1932 Elsevier.
    4. David Bradford, 1991. "Tax Policy and the Economy, Volume 5," NBER Books, National Bureau of Economic Research, Inc, number brad91-1.
    5. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters,in: Tax Policy and the Economy, Volume 5, pages 55-110 National Bureau of Economic Research, Inc.
    6. Juan C. Conesa & Carlos Garriga, 2008. "Optimal Fiscal Policy In The Design Of Social Security Reforms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 291-318, February.
    7. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, pages 574-595.
    8. Georges De Menil & Robert Fenge & Pierre Pestieau, 2008. "Pension Strategies in Europe and the United States," Post-Print halshs-00754865, HAL.
    9. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 2002. "Distributional Effects in a General Equilibrium Analysis of Social Security," NBER Chapters,in: The Distributional Aspects of Social Security and Social Security Reform, pages 327-370 National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Generational Accounting; Ramsey Taxation;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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