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Medicare from the Perspective of Generational Accounting

Author

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  • Jagadeesh Gokhale
  • Laurence J. Kotlikoff

Abstract

U.S. policy changes and more optimistic fiscal forecasts have significantly improved the long-term fiscal prospects of the country. Nevertheless, these prospects remain dismal. Unless U.S. fiscal policy changes by a lot and very soon, our descendants will face rates of lifetime net taxation that are 70 percent higher than those we now face. They will, on average, find themselves paying 1 of every 2 dollars they earn to a local, state, or federal government in net taxes. A number of factors, besides current and projected Medicare spending, are responsible for the imbalance in U.S. generational policy. But the ongoing excessive growth of Medicare benefits is certainly a key culprit. Achieving generational balance solely by cutting Medicare benefits is feasible but would require cutting over two-thirds of the program's expenditures assuming the cuts were made today. If one waits five years before cutting Medicare, four-fifths of the programs would have to be slashed. Clearly, Medicare cuts of this magnitude are unlikely to happen, but however we resolve our sever crisis in U.S. generational policy, it's clear that significant reductions in Medicare spending will be a major part of the story.

Suggested Citation

  • Jagadeesh Gokhale & Laurence J. Kotlikoff, 1998. "Medicare from the Perspective of Generational Accounting," NBER Working Papers 6596, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6596
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    File URL: http://www.nber.org/papers/w6596.pdf
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    References listed on IDEAS

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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. Laurence J. Kotlikoff & Willi Leibfritz & Willi Leibfritz, 1999. "An International Comparison of Generational Accounts," NBER Chapters,in: Generational Accounting around the World, pages 73-102 National Bureau of Economic Research, Inc.
    3. Alan J. Auerbach & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "The Methodology of Generational Accounting," NBER Chapters,in: Generational Accounting around the World, pages 31-42 National Bureau of Economic Research, Inc.
    4. Cardarelli, Roberto & Sefton, James & Kotlikoff, Laurence J, 2000. "Generational Accounting in the UK," Economic Journal, Royal Economic Society, vol. 110(467), pages 547-574, November.
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    Cited by:

    1. Louise Sheiner & David M. Cutler, 2000. "Generational Aspects of Medicare," American Economic Review, American Economic Association, vol. 90(2), pages 303-307, May.

    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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