Generational Accounts: A Meaningful Alternative to Deficit Accounting

This paper presents a set of generational accounts that can be used to assess the fiscal burden that current generations are placing on future generations. The generational accounts indicate, in present value, the net amount that current and future generations are projected to pay to the government now and in the future. These accounts can be understood in terms of the government’s intertemporal (long-run) budget constraint. This constraint requires that the sum of generational accounts of all current and future generations plus existing government net wealth be sufficient to finance the present value of current and future government consumption.

The generational accounting system represents an alternative to using the federal budget deficit to gauge intergenerational policy. From a theoretical perspective, the measured deficit need bear no relationship to the underlying intergenerational stance of fiscal policy. Indeed, from a theoretical perspective, the measured deficit simply reflects economically arbitrary labeling of government receipts and payments.

Within the range of reasonable growth and 'interest-rate assumptions, the difference between age zero and future generations in generational accounts ranges from 17 to 24 percent. This means that if the fiscal burden on current generations is not increased relative to that projected from current policy (ignoring the federal budget enacted in 1990) and if future generations are treated equally (except for an adjustment for growth), the fiscal burden facing all future generations over their lifetimes will be 17 to 24 percent larger than that facing newborns in 1989. The 1990 federal budget will, if it sticks, significantly reduce the fiscal burden on future generations.

The calculations of generational accounts reported here are based solely on government receipts and expenditures from the National Income and Product Accounts (NIPA), and reflect the age pattern of government receipts and payments as well as the projected substantial aging of the U.S. population.