Cyclically Neutral Generational Accounting

28 Pages Posted: 26 Nov 2013

See all articles by Holger Bonin

Holger Bonin

IZA Institute of Labor Economics; ZEW – Leibniz Centre for European Economic Research

Concepcio Patxot

University of Barcelona - Department of Economic Theory

Guadalupe Souto

Autonomous University of Barcelona

Date Written: November 15, 2013

Abstract

This paper introduces a methodological innovation into Generational Accounting. By incorporating cyclically-adjusted balances into the forward-looking budget projections underlying the concept we isolate pure policy effects, which render comparisons of the fiscal sustainability indicators obtained across time and countries truly meaningful. We also show that a demographic effect and a debt effect may bias fiscal sustainability measures over time, and establish a routine to control for these effects in the generational accounting framework. An empirical application for Spain illustrates that our proposed decomposition of indicators is empirically relevant. Standard generational accounting suggests that fiscal sustainability in Spain improved substantially in preparing for EMU. However, calculation of the pure policy effects reveals that this has not been the case.

Keywords: Fiscal Sustainability, Demographic Ageing, Cyclically-Adjusted Budget Balance, Spain

JEL Classification: E62, H55

Suggested Citation

Bonin, Holger and Patxot Cardoner, Concepcio and Souto, Guadalupe, Cyclically Neutral Generational Accounting (November 15, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-099. Available at SSRN: https://ssrn.com/abstract=2359373 or http://dx.doi.org/10.2139/ssrn.2359373

Holger Bonin (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 303 (Phone)
+49 228 3894 510 (Fax)

ZEW – Leibniz Centre for European Economic Research

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Concepcio Patxot Cardoner

University of Barcelona - Department of Economic Theory ( email )

Barcelona
Spain

Guadalupe Souto

Autonomous University of Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

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