Population Aging and Fiscal Policy in Europe and the United States
24 Pages Posted: 7 Apr 2001
Date Written: January 2000
Abstract
In this paper, we compare the total size of intertemporal public liabilities (IPLs) of several European countries and the United States. We utilize the machinery of generational accounting in order to calculate the composition of the countries IPLs, that is the sum of the explicit and implicit liabilities embedded in the respective fiscal policies. The findings suggest that present fiscal policies of all countries with the exception of Ireland have positive intertemporal liabilities and, hence, are unsustainable over the long-term. The study also confirms the claim made by advocates of generational accounting that explicit debt is a poor indicator of long-term fiscal sustainability. Among all EMU participants, those with the highest implicit liabilities report the lowest explicit debt. However, countries with the smallest or negative implicit liabilities have rather high explicit debt levels in the base year of the calculations reported here 1995.
JEL Classification: E6, H6, J1
Suggested Citation: Suggested Citation