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

See all articles by Mikk Medijainen

Mikk Medijainen

University of Tartu - Department of Economics

Date Written: August 4, 2010

Abstract

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

Medijainen, Mikk, Generational Accounting as a Tool to Evaluate the Fiscal Sustainability of Estonia (August 4, 2010). The University of Tartu Faculty of Economics and Business Administration Working Paper No. 74-2010. Available at SSRN: https://ssrn.com/abstract=1653283 or http://dx.doi.org/10.2139/ssrn.1653283

Mikk Medijainen (Contact Author)

University of Tartu - Department of Economics ( email )

Narva 4-A123
Tartu, 51009
Estonia

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