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Social Security and Medicare Policy From the Perspective of Generational Accounting

  • Alan J. Auerbach
  • Jagadeesh Gokhale
  • Laurence J. Kotlikoff

Our previous study (Auerbach, Gokhale and Kotlikoff 1991) introduced the concept of generational accounting, a method of determining how the burden of fiscal policy falls on different generations. it found that fiscal policy in the U.S. is out of balance, in terms of projected generational burdens. This means that either current generations will bear a larger share (than we project under current law) of the burden of the government's spending or that future generations will have to pay, on average, at least 21 percent more, on a growth-adjusted basis, than will those generations who have just been born. These conclusions were based on relatively optimistic assumptions about the path of social security sod Medicare policies, namely that the accumulation of a social security trust fund would continue and that Medicare costs would not rise as a share of QP. In this paper, we simulate the effects of realistic alternative paths for social security and Medicare. Our results suggest that such alternative policies could greatly increase the imbalance in generational policy, making not only future generations pay significantly more, but current young Americans as well. For example, continued expansion of Medicare in this decade alone could double the 21 percent imbalance figure if the bill for this Medicare growth is shifted primarily to future generations.

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File URL: http://www.nber.org/papers/w3915.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3915.

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Date of creation: Nov 1991
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Publication status: published as Auerbach, Alan J., Jagadeesh Gokhale and Laurence J. Kotlikoff. "Generational Accounting: A Meaningful Way To Evaluate Fiscal Policy," Journal of Economic Perspectives, 1994, v8(1), 73-94
Handle: RePEc:nbr:nberwo:3915
Note: PE AG
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  1. 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.
  2. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February.
  3. Auerbach, Alan J & Gokhale, Jagadeesh & Kotlikoff, Laurence J, 1992. " Generational Accounting: A New Approach to Understanding the Effects of Fiscal Policy on Saving," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(2), pages 303-18.
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