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Is the Deficit under Control?A Generational Accounting Perspective on Fiscal Policy and Labour Market Trends in Spain

  • Bonin, Holger


    (ZEW Mannheim)

  • Abio, Gemma

    (affiliation not available)

  • Berenguer, Eduardo


    (University of Barcelona)

  • Gil, Joan

    (affiliation not available)

  • Patxot, Concepció


    (University of Barcelona)

According to the 2001 Spanish budgetary previsions, the government deficit is about to disappear. We analyse this matter within a generational accounting framework. Accounting for the recent expansive phase of the economic cycle, we find that current fiscal policy is also intertemporally balanced provided that the favourable present employment situation lasts. However, public finances remain under the pressure of the demographic cycle. Therefore, to achieve fiscal sustainability, the surpluses predicted for the next decades need to be accumulated, in order to finance deficits appearing during the baby-boomers’ retirement. The improvement of employment has played an important role in this situation. We extend the standard generational accounting methodology incorporating tax and transfer age profiles by employment status. This permits us to analyse the possible intertemporal impact of several future employment developments. In particular, we assess the fiscal effects of an expected future increase in female labour force participation. We show that this trend does not necessarily improve the intertemporal government budget, as social insurance in Spain is not actuarially fair. Finally, we also assess the impact of a decline in unemployment to the natural rate of unemployment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 306.

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Length: 41 pages
Date of creation: Jun 2001
Date of revision:
Publication status: published in: Investigaciones Economicas, 2003, 27 (2), 309-341
Handle: RePEc:iza:izadps:dp306
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  1. Alan J. Auerbach, 1997. "Quantifying the Current U.S. Fiscal Imbalance," NBER Working Papers 6119, National Bureau of Economic Research, Inc.
  2. Willem H. Buiter, 1996. "Generational Accounts, Aggregate Savings, and Intergenerational Distribution," IMF Working Papers 96/76, International Monetary Fund.
  3. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational accounting: a new approach for understanding the effects of fiscal policy on saving," Working Paper 9107, Federal Reserve Bank of Cleveland.
  4. Robert Haveman, 1994. "Should Generational Accounts Replace Public Budgets and Deficits?," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 95-111, Winter.
  5. Holger Bonin & Bernd Raffelhüschen & Jan Walliser, 2000. "Can Immigration Alleviate the Demographic Burden?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 1-, September.
  6. 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.
  7. Raffelhuschen, B., 1999. "Generational Accounting in Europe," Norway; Department of Economics, University of Bergen 196, Department of Economics, University of Bergen.
  8. Holger Bonin & Joan Gil Trasfi & Concepcion Patxot Cardoner, 1999. "Beyond the Toledo agreement: the intergenerational impact of the spanish pension reform," Working Papers in Economics 54, Universitat de Barcelona. Espai de Recerca en Economia.
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  1. Eduard Berenguer Comas in Wikipedia Spanish ne '')
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