IDEAS home Printed from https://ideas.repec.org/p/nsr/niesrd/195.html
   My bibliography  Save this paper

Generational Accounting in the UK

Author

Listed:
  • James Sefton

    ()

Abstract

Generational Accounting measures the burden that current fiscal policies are likely to impose on future generations. It also identifies the set of policy reforms needed to achieve generational balance a situation in which future generations face the same lifetime net tax rates as current generations. This paper presents the first set of generational accounts for the United Kingdom and compares the UK generational imbalance with that in the U.S., Japan, Germany, France, Italy, and twelve other countries in Europe, Asia, and South America. The preparation of this study was greatly aided by various departments of the government, particularly H.M. Treasury. In providing this assistance, the government has initiated an extremely important process of doing long-term fiscal planning for the nation on a systematic and comprehensive basis. That said, the particular findings and assessments presented in this paper are those of its authors and not those of Her Majesty's Government. Compared with other leading industrial countries like the U.S., Japan, and Germany, the imbalance in U.K. generational policy is, under our assumed baseline policy, quite modest; i.e., there is not a major intergenerational problem. Moreover the imbalance would entirely disappear if labour productivity growth should turn out to be 1/4 per cent higher than our baseline assumption and government expenditures were not raised in line with the increase in the tax base. Should this not arise, some fiscal adjustment would be needed to achieve generational balance. This could take a variety of forms, such as the equivalent of either a £5 bn increase in tax revenue or a £5 bn reduction in government spending with proportionate tax increases or spending reductions thereafter. Our baseline policy scenario, which represents our sense of current government policy, is marked by very considerable fiscal restraint and prudence. In particular, it assumes a) the price indexation of a variety of social benefits, including the Basic and SERPS pension benefits, and b) a slowdown in the growth of health care spending per beneficiary. In our baseline, pension and other social benefits payments decline by 2050 from 13 percent to 9 percent of GDP. Social security contributions also decline under the baseline, lowering total taxes relative to GDP after 2050. Due to population aging, health care spending rises in the baseline from 6 percent to 8 percent of GDP between now and 2050 notwithstanding the assumed slower growth of benefits per beneficiary. Despite our fiscally responsible baseline, these assumptions still leave a generational imbalance. Without great restraint in future government purchases of goods and services or increases (relative to our baseline projection) over time in the net tax payments of current British adults, future British children could well face higher lifetime net tax rates (the present value of lifetime net taxes divided by the present value of lifetime labour earnings) than their parents now face. Under an alternative policy scenario, that we label Looser Policy, pension and other social benefits are wage indexed and growth in health care spending per beneficiary remains at current levels through 2030. Since current generations pay less in net taxes under this alternative scenario, there is a larger fiscal bill left for future generations to pay. In this case, achieving generational balance would require much stronger medicine, either a substantial sustained cut in non education and non health government spending or an equally substantial increase in income tax revenues and a corresponding increase in social security contributions.

Suggested Citation

  • James Sefton, 1999. "Generational Accounting in the UK," National Institute of Economic and Social Research (NIESR) Discussion Papers 147, National Institute of Economic and Social Research.
  • Handle: RePEc:nsr:niesrd:195
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Majumder, Amita & Chakravarty, Satya Ranjan, 1990. "Distribution of Personal Income: Development of a New Model and Its Application to U.S. Income Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(2), pages 189-196, April-Jun.
    2. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
    3. McDonald, James B & Mantrala, Anand, 1995. "The Distribution of Personal Income: Revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 201-204, April-Jun.
    4. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Görg, Holger, 2002. "Fancy a Stay at the 'Hotel California'? Foreign Direct Investment, Taxation and Firing Costs," IZA Discussion Papers 665, Institute for the Study of Labor (IZA).
    2. Holger Görg, 2003. "Fancy a stay at the "Hotel California "?Foreign Direct Investment,Taxation and Exit Costs," DNB Staff Reports (discontinued) 96, Netherlands Central Bank.
    3. Holger Görg, 2003. "Foreign direct investment, investment incentives, and firing costs: A disadvantage for "inflexible Europe"?," European Economy Group Working Papers 30, European Economy Group.
    4. Basile, Roberto & Castellani, Davide & Zanfei, Antonello, 2008. "Location choices of multinational firms in Europe: The role of EU cohesion policy," Journal of International Economics, Elsevier, vol. 74(2), pages 328-340, March.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nsr:niesrd:195. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Library & Information Manager). General contact details of provider: http://edirc.repec.org/data/niesruk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.