Abstract

This paper is a survey of Generational Accounting, an estimation tecnique introduced by Auerbach-Gokhale-Kotlikoff (1992) in order to gauge the sustainability of fiscal policy. Generational Accounting is based on the government intertemporal budget constraint, and indicate the present value of net taxes that current and future generations are expected to pay given the current fiscal policy and the government net wealth. In a OLG model we show that the usefulness of GA depends on the pure life cycle model. In presence of liquidity constraints and/or of ricardian neutrality GA does not give a correct description of the intergenerational effects of fiscal policy. Even in the LCH model GA ignores the effects of taxes and transfers on goods and factors gross prices, i.e. it does not take accont of general equilibrium effects. The conclusion is that GA is useful in order to give insights on the long term trends of fiscal policy, especially when they redistribute resources across generation. However GA should not replace the other fiscal policy indicators derived from the public budget.