Abstract
We investigate the intergenerational welfare implications of Generational Accounting when it is used as the basis for intertemporal fiscal policy decisions. In particular, we consider an economy with a PAYGO social security system out of steady state due to a permanent fall in fertility. In a highly stylized CGE overlapping generations model we illustrate that policy recommendations based on a standard application of Generational Accounting may not be compatible with intertemporal welfare maximization. Our model provides an example where such policies are either time inconsistent or welfare-decreasing.
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Raffelhüschen, B., Risa, A.E. Generational accounting and intergenerational welfare. Public Choice 93, 149–163 (1997). https://doi.org/10.1023/A:1004976025770
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DOI: https://doi.org/10.1023/A:1004976025770