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Generational policy and the macroeconomic measurement of tax incidence

  • Juan Carlos Conesa
  • Carlos Garriga

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.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-003.

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Date of creation: 2009
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Handle: RePEc:fip:fedlwp:2009-003
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  1. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
  2. 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.
  3. 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, 02.
  4. Laurence J. Kotlikoff, 2001. "Generational Policy," NBER Working Papers 8163, National Bureau of Economic Research, Inc.
  5. Hans Fehr & Laurence J. Kotlikoff, 1995. "Generational Accounting in General Equilibrium," NBER Working Papers 5090, National Bureau of Economic Research, Inc.
  6. 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, vol. 14(3), pages 57-74, Summer.
  7. 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.
  8. David Bradford, 1991. "Tax Policy and the Economy, Volume 5," NBER Books, National Bureau of Economic Research, Inc, number brad91-1, June.
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