The Burden of German Unification: A Generational Accounting Approach

Germany recently introduced several unification-related tax measures for financing resource transfers to support the eastern economy. This paper assesses the generational stance of postunification German fiscal policy and estimates the burden of unification related fiscal measures on West German generations. It finds that postunification German fiscal policy is, generationally speaking, imbalanced: Future generations will bear 22 percent larger lifetime net tax burdens than current newborn German generations. Most of the burden of the tax increases falls on young and working-age generations. Additional tax increases or spending reductions are required to produce a generationally balanced fiscal policy.