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The Congressional Budget Office (CBO) prepared this report at the request of the Chairman of the Subcommittee on Long-Term Growth, Debt and Deficit Reduction of the Senate Committee on Finance. The study examines the system of generational accounting, which was developed to show how fiscal policy affects people of different ages--living now or yet to be born.
John Sturrock of CBO's Macroeconomic Analysis Division wrote the study under the supervision of Robert Dennis, Douglas Hamilton, and Kim Kowalewski. CBO analysts Thomas Cuny, Douglas Elmendorf, Jon Hakken, Robert Hartman, Marvin Phaup, Kathy Ruffing, Kent Smetters, and Paul Van de Water made helpful comments and suggestions. Nicholas Dugan, John Romley, and Michael Simpson gave able research assistance.
Outside CBO, David Bradford, Christopher Barker, David Cutler, Robert Haveman, and Michael Weiksner contributed valuable comments and insights. Alan Auerbach, Jagadeesh Gokhale, and Laurence Kotlikoff supplied much data, explained many points, and provided extensive and insightful comments. Marilyn Sorenson of the House Information Systems deserves special thanks for helping to prepare the numerical results. Those outside CBO are not responsible for conclusions expressed or errors that may appear in the report.
Sherwood D. Kohn edited the manuscript. Christian Spoor provided editorial assistance. Dorothy Kornegay, Verlinda Lewis, and Linda Rae Roy typed the drafts. Kathryn Quattrone prepared the study for publication.
The Deficit Does Not Show the Effects of Policy by Age
Generational Accounts Aim to Show the Effects of Policy
by Age
The Role of Generational Accounts
Forming the Basis of Generational Accounts
Estimating Tax and Transfer Payments by Age
Calculating Generational Accounts
Reporting and Interpreting Generational Accounts
THREE - FINDINGS OF GENERATIONAL ACCOUNTS
Assessing the Evolution and Status of Generational Policy
Eliminating the Difference in Lifetime Net Tax Rates
of Future Generations and Current Newborns
Assessing Past or Prospective Fiscal Policy
FOUR - UNCERTAINTIES IN GENERATIONAL ACCOUNTS
Sensitivity of Results to Economic and Demographic Assumptions
Sensitivity of Results to Other Sources of Uncertainty
FIVE - AMBIGUITIES IN GENERATIONAL ACCOUNTS
There Is No Uniquely Right Discount Rate
The Accounts Assume That Prospective Income Is Fixed
Issues Common to Other Tools of Analysis
APPENDIXES
A.
Is the Zero-Sum Constraint Necessary?
B.
How Generational Accounts Treat Taxes on Income from Capital
C.
The Roles of Generational Accounts and the Standard Budget Accounts
D.
How Generational Accounts Were Developed Under Alternative Economic and
Demographic Assumptions
TABLES
S-1. Estimated Lifetime Net Tax Rates by Year of
Birth
1. Estimated Lifetime Tax and Transfer
Rates by Year of Birth
2. Distribution of Costs of Hypothetical
Policy Changes Needed in 1991 to Reach a Sustainable Policy
3. Alternative Policies That Would
Change the Timing or Mix of Taxes and Transfers
4. Alternative Policies That Would
Cut the Deficit by an Equal Amount
5. Lifetime Net Tax Rates Under Alternative
Economic and Demographic Assumptions
6. Hypothetical Proportionate Cut
in Government Purchases Required in 1991 to Reach a Sustainable Policy
FIGURES
1. Taxes Paid by the Average Member
of Each Generation in 1991
2. Transfers Received by the Average
Member of Each Generation in 1991
3. A Policy That Raises the Deficit:
Variation in Results Under Alternative Assumptions
4. Policies That Do Not Affect the
Deficit: Variation in Results Under Alternative Assumptions
5. Policies That Cut the Deficit by
an Equal Amount: Variation in Results Under Alternative Assumptions
6. Productivity and Its Trends
BOXES
1. How Generational Accounts Treat
Taxes and Transfers
2. Tangible Assets of Government
3. Lifetime Labor Income and Lifetime
Consumption
4. The Case in Favor of Separate Generational
Accounts
5. Would an Updated Version of Generational
Accounts Change the Results?
C-1. How Labels Can Affect Measures
of Fiscal Policy
