Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy

Auerbach, Alan J.; Gokhale, Jagadeesh; Kotlikoff, Laurence J.

doi:10.1257/jep.8.1.73

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Journal of Economic Perspectives: Vol. 8 No. 1 (Winter 1994)

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Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy

Article Citation

Auerbach, Alan J., Jagadeesh Gokhale, and Laurence J. Kotlikoff. 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy." Journal of Economic Perspectives, 8(1): 73-94.

DOI: 10.1257/jep.8.1.73

Abstract

This paper illustrates the technique of generational accounting, a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting. The authors illustrate why there is no 'correct' measure of the deficit and how generational accounting--estimating the fiscal burdens current policy places on different generations--provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit. Their calculations suggest that, despite recent changes, U.S. fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive.

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Authors

Auerbach, Alan J. (U PA and NBER)
Gokhale, Jagadeesh (Federal Reserve Bank of Cleveland)
Kotlikoff, Laurence J. (Boston U and NBER)

JEL Classifications

E62: Fiscal Policy

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