Generational Accounting for Italy
Fiscal Sustainability Conference, p. 501, 2000
58 Pages Posted: 17 Jul 2012
Date Written: January 20, 2000
Roberto Cardarelli and Nicola Sartor present generational accounting estimates for Italy which is characterised by the very low fertility rate, the high public debt and the large proportion of social expenditure targeted to the elderly. The paper points to the reduction in the intergenerational imbalance achieved in the past decade, but also to the need for further adjustments. The authors show how generational accounting translates the intertemporal budget constraint into a series of generational net fiscal positions that indicate which generation will bear the burden of consolidation. They note that the standard practice of simply comparing the fiscal position of new-born and future generations is unsatisfactory, since it assumes that living generations carry no burden and all future generations necessarily carry the same burden. In this context, there is no distinction between unsustainability and inequality. The one implies the other and viceversa. Therefore, Cardarelli and Sartor consider alternative indicators, such as the immediate and permanent change in tax or spending that would be necessary for all generations to ensure sustainability. The paper extensively analyses the impact of the pension reforms on intergenerational imbalances. It shows that the reforms introduced in recent years have largely reduced the existing imbalances and it evaluates the implications of further reforms. In particular, the authors stress the need for policy actions improving the balance between active and non-active individuals. Finally, they note that any policy reducing the debt to GDP ratio to a specific level within a specific period of time changes the generational distribution of the burden associated with the solvency constraint.
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