Generational Accounting as a Tool to Evaluate the Fiscal Sustainability of Estonia
The University of Tartu Faculty of Economics and Business Administration Working Paper No. 74-2010
48 Pages Posted: 5 Aug 2010
Date Written: August 4, 2010
Generational accounting is a relatively recent methodology that measures the fiscal burden government policies impose on future generations. Comparing the fiscal burden of future generations to the burden levied on current newborns yields the generational imbalance. Micro data from the Household Budget Survey is combined with data from the national accounts to construct the generational accounts for current and future generations. The results show that as expected there was a relatively mild intergenerational imbalance (64%) in Estonia in 2009. The generational accounts are sensitive to growth forecasts, while population forecasts seem to be of less influence. To achieve intergenerational balance, an imminent and sustained tax rise to increase tax revenue by 9% should be enforced. Alternatively, the indexing of pensions could be made less generous or government net collective expenditures should be cut by approximately 23%.
Keywords: generational accounting, fiscal sustainability, Estonia
JEL Classification: H61, H62, H63, H68
Suggested Citation: Suggested Citation