generational accounts: a meaningful alternative to deficit accounting

GENERATIONALACCOUNTS: AMEANINGFULALTERNATIVE TO DEFICITACCOUNTING

Alan J. AuerbachUniversity of Pennsylvania and NBER

Jagadeesh GokhaleThe Federal Reserve Bank of Cleveland

Laurence J. KotlikoffBoston University and NBER

EXECUTIVE SUMMARY

This paper presents a set of generational accounts that can be used toassess the fiscal burden current generations are placing on future genera-tions. The generational accounts indicate, in present value, the netamount that current and future generations are projected to pay to thegovernment now and in the future. These accounts can be understood interms of the government's intertemporal (long-run) budget constraint.

We thank Jinyong Cai, Ritu Nayyar, and Bash Hardeo for excellent research assistance andAlbert Ando, David Bradford, Bill Gavin, and Mark Sniderman for very helpful comments.We are particularly grateful to Jane Gravelle for providing a variety of critical data and fornumerous lengthy and extremely useful discussions. We thank The National Institute ofAging and The National Bureau of Economic Research for research support.

56 Auerbach, Gokhale & Kotlikoff

This constraint requires that the sum of generational accounts of allcurrent and future generations plus existing government net wealth besufficient to finance the present value of current and future governmentconsumption.

The generational accounting system represents an alternative to usingthe federal budget deficit to gauge intergenerational policy. From a theo-retical perspective, the measured deficit need bear no relationship to theunderlying intergenerational stance of fiscal policy. Indeed, from a theo-retical perspective the measured deficit simply reflects economically arbi-trary labeling of government receipts and payments.

Within the range of reasonable growth and interest rate assumptionsthe difference between age zero and future generations in generationalaccounts ranges from 17 to 24%. This means that if the fiscal burden oncurrent generations is not increased relative to that projected from currentpolicy (ignoring the just enacted federal budget deal) and if future genera-tions are treated equally (except for an adjustment for growth) the fiscalburden facing all future generations over their lifetimes will be 17 to 24%larger than that facing newborns in 1989. The just enacted budget will, if itsticks, significantly reduce the fiscal burden on future generations.

The calculations of generational accounts reported here are basedsolely on NIPA government receipts and expenditures, and reflect theage pattern of government receipts and payments as well as the pro-jected substantial aging of the U.S. population.

I. INTRODUCTIONThe federal deficit is widely viewed as the United States' number oneeconomic problem. Yet there is no consensus as to how to measure thedeficit. Some want to exclude the current social security surplus, otherswant to include the full value of the S&L bail out, and others are con-cerned about adjustments for unfunded government retirement liabili-ties, inflation, growth, and government acquisition and sale of assets.The debate has not been restricted to politicians. Economists haveplayed a major role in lobbying for their favorite definitions of the deficit(e.g., Feldstein, 1974; Eisner and Pieper, 1984).

Of course, a lot is at stake in how one measures the deficit. Givencurrent policy, leaving out social security surpluses means whoppingdeficits through the 1990s, while adjusting for inflation and growth al-most turns the officially defined deficit into a surplus. As the underlyingcredo of fiscal policy is to cut spending or raise taxes to make the deficitzero, the attention given to how to define the deficit is not surprising.

The goal of setting the deficit to zero seems quite strange in light of our

Generational Accounts 57

uncertainty about how the deficit should be measured. If we are not surewhat the deficit is, how can we be sure it should be zero? Rather thancontinue debating the deficit's measurement, perhaps we should firstask what concept the deficit is supposed to measure and then determinea measure consistent with that concept.

The conceptual issue associated with the word "deficit" is the in-tergenerational distribution of welfare. Specifically, how much are dif-ferent generations paying to finance government consumption and tosubsidize each other? Unfortunately, from the perspective of economictheory, the deficit is an arbitrary accounting construct whose value hasno necessary relation to the question of generational burdens. As dem-onstrated by Kotlikoff (1984, 1988, 1989) and Auerbach and Kotlikoff(1987), from a theoretical perspective the government can run any fiscalpolicy it chooses while simultaneously reporting any size deficit orsurplus. It can do so simply through the choice of how it labels itsreceipts and payments. For example, the government can (and does)label workers' social security contributions "taxes" and retirees' socialsecurity benefits "transfers." Suppose, instead, the government labeledworkers' contributions "loans" to the government and retirees' benefits"return of principal and interest" on these "loans" plus an additional"old age tax" equal to the difference between benefits and the "returnof principal plus interest" on the "loans." In this case the reporteddeficit would be entirely different not only with respect to its level, butalso with respect to its changes over time.1 This is not an isolatedexample; every dollar the government takes in or pays out is labeled ina manner that is economically arbitrary.

If the deficit has no intrinsic relation to generational policy, whatmeasure does? The answer according to economic theory is what weterm generational accounts. These are accounts—one for each genera-tion—that tally up, in present value, the amount of receipts less pay-ments the government can expect to collect from each generation overits remaining life span. These generational accounts are comprehensivein that they consider all receipts and payments collected from or paid toall federal, state, and local governments. In contrast to the deficit,generational accounts are invariant to changes in accounting labels.This may be seen, for example, by considering the alternative labelingof social security just discussed. For each generation the present valueof its social security "tax" contributions less its receipts of "transfers"

1 The Economic Report of the President 1982—Appendix to Chapter 4 reports both the conven-tional deficit and the deficit that arises from defining social security contributions as"loans" to the government.


consisting of social security benefits is identically equal to the presentvalue of its "old age tax."

The generational accounts are discussed in the context of the govern-ment's intertemporal budget constraint, which states that the govern-ment's current net wealth plus the present value of the government'snet receipts from all current and future generations (the generationalaccounts) must be sufficient to pay for the present value of the govern-ment's current and future consumption. By comparing what the govern-ment is projected to take from current generations with the differencebetween its projected consumption expenditures and its current netwealth, one can estimate the amount that future generations will needto pay. Hence, the generational account approach indicates directly theburden on future generations imposed by increases in expenditures onexisting generations, including existing elderly generations. This "zerosum" feature of the government's intertemporal budget constraint(some generation has to pay for any benefit to another generation)imposes a useful discipline on fiscal analysis. If the government were toadopt the accounting framework developed in this study, it would berequired to specify the costs to be borne by future generations forprograms that help existing generations, and vice versa.

The generational accounts can also be used to assess the effects onnational saving of programs to redistribute more or less to current genera-tions. For example, a decision to lower Medicare benefits means an in-crease in the expected present value of net payments to the governmentby the existing elderly. The change in the present value accounts of eachelderly generation due to this policy represents the change in their life-time resources. Using recent generation-specific estimates of the propen-sity to consume out of lifetime resources developed by Abel, Bernheim,and Kotlikoff (1991), one can consider the effect on national consumptionand national saving of such policy changes.

The primary sources of data used in this study are the Bureau of theCensus' Survey of Income and Program Participation (SIPP), the SocialSecurity Administration's population projections, the Bureau of LaborStatistics Consumer Expenditure Surveys (from 1980 onward), and theNational Income and Products Accounts reported in the July 1990 Surveyof Current Business.

The findings of this paper suggest a larger fiscal burden—17 to 24%larger—on future generations than the burden to be imposed on 1989newborns under current policy (ignoring the recently enacted federalbudget deal). These figures are adjusted for growth, i.e., the increase is17 to 24% above the increase in fiscal burden that would accompany trendgrowth. The assessment that future generations face 17 to 24% higher


net taxes over the course of their lifetimes suggests a significant genera-tional problem. The recently enacted federal budget deal will, if it is notsubverted, substantially reduce, if not eliminate the additional burdenthat would otherwise be imposed on future generations.

The paper continues in Section II with a more precise description bothof generational accounts and their relationship to the government's in-tertemporal budget constraint. Section III describes how one can use thegenerational accounts to assess the generational stance of fiscal policy.Section IV considers the relationship of each generation's account to itsown lifetime budget constraint. Section V provides a detailed descrip-tion of the data sources and methodology used in calculating the genera-tional accounts. Section VI presents our findings, including our policysimulations. Our findings should be viewed as preliminary becausethere are a number of aspects of our calculations that can be improvedwith the additional data that we are in the process of procuring. Wesimulate (1) the President's proposed capital gains tax cut, (2) eliminat-ing the 1983 social security benefit cuts scheduled to go into effectaround the turn of this century, (3) growth in Medicare spending inexcess of the economy-wide growth rate, (4) the impact of the $500billion S&L bailout, (5) slower growth in government consumptionspending, and (6) the budget deal just enacted by Congress and signedby the President. Finally, Section VII summarizes our findings anddraws conclusions.

II. GENERATIONAL ACCOUNTS

The term "generations" refers in this paper to males and females byspecific years of age. The term "net payments" refers to the differencebetween government tax receipts of all types (such as federal and stateincome taxes) and government transfer payments of all types (such associal security benefits, unemployment benefits, and food stamps). Fi-nally, all present values reflect discounting at a pretax interest rate.

To make the generational accounts and their relationship to the gov-ernment's budget constraint more precise, we write the government'sintertemporal budget constraint for year t in equation (1):

(1)

The first term on the left hand side of (1) adds together the present valueof the net payments of existing generations. The expression Ntk stands


for the present value of net remaining lifetime payments to the govern-ment of the generation born in year k discounted to year t. The index s inthis summation runs from age 0 to age D, the maximum length of life.Hence, the first element of this summation is Nt t, which is the presentvalue of net payments of the generation born in year f; the last term isNtj_D/ the present value of remaining net payments of the oldest genera-tion alive in year t, namely those born in year t—D. The second term onthe left hand side of (1) adds together the present value of remaining netpayments of future generations. The third term on the left-hand side,Wf, denotes the government's net wealth in year t. The right-hand sideof (1) expresses the present value of government consumption. In thelatter expression, Gs stands for government consumption expenditure inyear s, and r; stands for the pretax rate of return in year;'.

Equation (1) indicates the zero sum nature of intergenerational fiscalpolicy. Holding the right-hand side of equation (1) fixed, increased (de-creased) government payments to (receipts taken from) existing genera-tions means a decrease in the first term on the left-hand side of (1) andrequires an offsetting increase in the second term on the left-hand side of(1), i.e., it requires reduced payments to or increased payments fromfuture generations.

The term NtJ( is defined in equation (2):

k+D s 1

s fA ns = max(t,k) j= f +

In expression (2) ts>k stands for the projected average net payment to thegovernment made in year s by a member of the generation born in yeark. By a generation's average net payment in year s we mean the averageacross all members of the generation alive in year s of payments made,such as income and FICA taxes, less all transfers received, such as socialsecurity, AFDC, and unemployment insurance. The term Pslc stands forthe number of surviving members of the cohort in year s who were bornin year k. For generations who are born prior to year t, the summationbegins in year t. For generations who are born in year k, where k>t, thesummation begins in year k. Regardless of the generation's year of birth,the discounting is always back to year t.

A set of generational accounts is simply a set of values of Ntk, one foreach existing and future generation, with the property that the com-bined total value adds up to the right-hand side of equation (1). In ourcalculation of the Ntks for existing generations (those whose fc<1989) we


distinguish male from female cohorts, but, to ease notation, we do notappend sex subscripts to the terms in (1) and (2).

III. ASSESSING THE INTERGENERATIONAL STANCEOF FISCAL POLICY

Once we have calculated the right-hand side of equation (1) and the firstterm on the left-hand side of equation (1), we determine, as a residual,the value of the second term on the right-hand side of equation (1),which is the present value of payments required of future generations.We further determine the amount that needs to be taken from eachsuccessive generation to balance the government's intertemporal bud-get, assuming that each successive generation's payment is the same upto an adjustment for real productivity growth.

This growth-adjusted constant amount is what must be taken fromsuccessive generations to maintain what Kotlikoff (1989) terms "fiscalbalance"; one can compare this measure with the actual amount pro-jected to be taken under current policy from existing generations, particu-larly the generation that has just been born. In other words, these dataprovide the answer to the question: Given the projected treatment ofcurrent generations as reflected in the values of their Nt ks, do we need totake substantially more from future generations than we are planning (asreflected by current policy) to take from current generations? In particu-lar, is NtJ substantially smaller than Nu+1 under the assumption that allvalues of Nts for s>£+1 equal Nt t+1 except for an adjustment for productiv-ity growth?2

Note that our assumption that all values of Nts for s>t+l are equal,except for a growth adjustment, is just one of many assumptions onecould make about the distribution across future generations of theircollective net payment to the government. We could, for example, as-sume a phase-in of the additional fiscal burden (which could be nega-tive) to be imposed on new young generations. Clearly, such a phase-inwould mean that new young generations born after the phase-in periodhas elapsed would face a larger (possibly smaller) Nts than we are calcu-lating here. Our purpose in assuming (1) growth-adjusted equal treat-ment of future generations and (2) that the N, ss of current generationsare those one would project under current policy is to illustrate thepotential intergenerational imbalance in fiscal policy and the potential

2 Our question is related to that posed in recent empirical studies (e.g., Hamilton andFlavin, 1986, and Wilcox, 1989), which asks whether government debt will explode givencurrent policy. However, we address the question of intertemporal government budgetbalance in a different, and, in our view, more satisfactory manner.


need for adjusting current fiscal policy. It is not to claim that policy willnecessarily deal with the intergenerational imbalance by treating all fu-ture generations equally or, indeed, by putting all the burden on futuregenerations.

Understanding the size of the Ntks for current generations and theirlikely magnitude for future generations is not the end of the story withrespect to assessing the intergenerational stance or incidence of fiscalpolicy. As studied in Auerbach and Kotlikoff (1987), intergenerationalredistribution will alter the time path of factor prices and, thereby, theintergenerational distribution of welfare. Such changes in factor pricesresult from changes in the supply of capital relative to labor. But thechanges in the supplies of capital and labor can, in turn, be traced backto changes in consumption and labor supply decisions, which are basedon private lifetime budget constraints. As described in the next section,the Ntils enter private budget constraints. Hence, knowing how theirvalues change is essential not only for understanding the direct effect ofgovernment policy on the intergenerational welfare distribution, butalso for assessing the changes in factor prices that may result from thepolicy. In short, then, understanding fully the incidence of inter-generational fiscal policy requires knowledge of changes in the values ofthe Ntks arising from the policy.

Indeed, one of the future goals of this research is to consider howpolicies other than those examined here might affect the values of theNt>ks for the elderly and other existing generations and to assess theimpact of such policies on national saving. In a recent study Abel,Bernheim, and Kotlikoff (1990) used CES data to calculate average andmarginal propensities to consume of U.S. households by the age of thehousehold head. We intend to use these results to determine the U.S.consumption response to a range of potential intergenerational fiscalpolicies. A generation's consumption response to the hypothetical poli-cies will simply be calculated as the change in the generation's Ntk multi-plied by the corresponding marginal propensity to consume.

IV. HOW DO THE Nt/ks ENTER PRIVATEBUDGET CONSTRAINTS?

The lifetime budget constraint of each generation specifies that the pres-ent value of its consumption must equal its current net wealth, plus thepresent value of its human wealth, plus the present value of its netprivate intergenerational transfers, less the present value of its net pay-ments to the government, its Ntk. This section shows precisely how the


Nt>ks enter private budget constraints and how we can use our estimateson the NKks and additional information to infer the extent of net privateintergenerational transfers.

For the generation born in year k the year t remaining lifetime budgetconstraint is

k+D s 1 k+D

s ^ U P n w ? 1t l

s n T 1 ns=f j=t+l i-ii'j s=f /=f+l

In (3) the terms Csk, lsk, and Esk stand, respectively, for the averagevalues in year s of consumption, private net intergenerational transfers,and labor earnings of the generation born in year k. The term W^k

stands for the year t net wealth of the generation born in year k. Thisequation states that the present value of the cohort's projected con-sumption plus its net intergenerational transfers equals the presentvalue of its resources. The present value of its resources equals, in turn,its net wealth, plus the present value of its labor earnings, less thepresent value of its net payments to the government, Ntk. There aredata available to estimate the present value of a cohort's consumption,the present value of its labor earnings, and its current net worth.Hence, in future work we intend to compare our estimates of Ntk withthe projected present value of the cohort's remaining lifetime re-sources. We will also use these data and equation (3) to derive, as aresidual, an estimate of the projected present value of the cohort's netprivate intergenerational transfers.

As mentioned, in our actual calculations we distinguish generationsby sex as well as age in 1990. Our calculated age and sex-specific valuesfor the present value of intergenerational transfers include, therefore,intragenerational transfers from males to females. Hence, in determin-ing the magnitude of transfers that are truly intergenerational (acrossage groups) we add together the calculated private transfers of male andfemale generations of the same age. This provides us with a statement ofthe net present value of private transfers given by (received from) allmembers (both the males and the females) of a given generation tomembers of other generations.

In the previous section we discussed comparing the NKks of futuregenerations with Ntt, which is the net lifetime payments of the genera-tion that was born at time t. We also discussed comparing the Ntks of allexisting generations under current policy with their respective valuesunder a different policy. These comparisons, which involve differences


(either across generations or across policies) in Ntks, are invariant to theaccounting framework we are adopting, although the absolute values ofthe Ntiks depend on our accounting framework.

To see this point, consider once again the labeling of social securityreceipts and payments. Although the U.S. government labels socialsecurity contributions as "taxes" and social security benefits as "trans-fers," from the perspective of economic theory one could equally welllabel social security contributions as "private saving" (invested in gov-ernment bonds) and label social security benefits as the "return ofprincipal plus interest" on that saving, less an "old age tax" that wouldbe positive or negative depending on whether the social security sys-tem was less than or more than actuarially fair in present value. Undereither choice of labels the right-hand side of the budget constraint (3)would retain the same value, but the division of the right-hand sidebetween W? and NKt would change. It is in this sense that the absolutevalue of the NMs depends on the accounting framework. However,regardless of which way one accounts for (labels) the social securitysystem, the change in the value of Ntk from a policy change, such as areduction in social security benefits, would be the same. Under theconventional labeling the change in the value of the Ntks would simplyequal the reduction for generation k in the time t present value of theirreceipts from social security. Under the "private saving less an old agetax" labeling, the change in the value of the Ntks would simply equalthe increase for generation k in the time t present value of their old agetax.

Although the change in the value of the Ntks associated with a policychange is invariant to the accounting convention (the choice of labelsfor government receipts and payments), the same is not true for thegovernment's budget deficit. The same change in policy will lead todifferent changes in the reported budget deficit depending on one'schoice of labels for government receipts and payments. For example,consider the impact of a equal reduction in social security contributionsand benefit payments under the two labeling schemes for social secu-rity. In the case social security contributions are labeled "taxes" andsocial security benefits are labeled "transfers," this policy change willhave no effect on the budget deficit, since the change in "taxes" equalsthe change in "transfer" spending. In contrast, if social security contri-butions are labeled "private saving" and social security benefits arelabeled "return of principal plus interest" plus "an old age tax," anequal and simultaneous reduction in contributions and benefit pay-ments will mean a larger "old age tax" for elderly recipients and implya reduction in the budget deficit.


V. CALCULATING THE Ntks AND OTHERCOMPONENTS OF THE GOVERNMENT ANDEACH GENERATION'S INTERTEMPORALBUDGET CONSTRAINTS

A. Data Sources for Calculating Net PaymentsAccording to equation (2) estimating the values of the Ntks requires pro-jections of net payments, the fs/jts for D+k>s>k, population projections,the Psks for D+k>s>k, and the time path of interest rates. Projections ofthe population by age and sex are available from the Social SecurityAdministration through 2050, and we have extrapolated these projec-tions through the year 2100 in the course of a study of demographics andsaving (Auerbach, Cai, and Kotlikoff, 1990).

We use SIPP data to calculate the average 1984 year values by age andsex of each of the different types of government receipts and paymentscovered in SIPP. The SIPP sample size is roughly 16,000 U.S. households.The SIPP is a panel survey that reinterviewed respondent householdseight times (every 4 months) over the course of 2 years. The first wave ofinterviews began in July 1983 and ended in July 1985. Thus, for 1984, thereis a complete calendar year of SIPP data. The government receipts andpayments in the SIPP survey include federal and state income and FICAtaxes, Food Stamps, AFDC and WIC benefits, Supplemental SecurityIncome, general relief, unemployment compensation, Social Security re-tirement, survivor and disability benefits, other welfare, Foster ChildCare, and other government transfers. Denton Vaughan (1989) provides adetailed analysis of the improvements in the measurement of governmentreceipts and payments in the SIPP as compared with other surveys suchas The Current Population Survey.

The major deficiency with respect to SIPP's coverage of governmentreceipts and payments is with respect to Medicaid and Medicare healthcare payments. To determine the average amount of Medicare paymentsby age (the data are not available by sex) for Medicare payments we useWaldo, Sonnefeld, and McKusick's (1989) calculations of average Medi-care expenditures by age.

Data on Medicaid expenditures by age and sex will ultimately be ob-tained from the National Center for Health Services Research's NationalMedical Care Expenditure Survey for 1987. These data are scheduled tobe released later this year. At the moment, however, we assume that thedistribution of Medicaid expenditures by age and sex is the same as thatof general welfare payments.


B. Determining Net PaymentsThe average values of the receipts and payments by age and sex calcu-lated from SIPP and the Medicare data are only used to determine thevalues of these receipts and payments by age and sex relative to that of abase age-sex category, which we take to be 40-year-old males. Giventhese age-sex relative profiles we determine our initial year (1990) aver-age values of each type of payment and receipt by age and sex by bench-marking against aggregate totals reported in the National Income andProduct Account's aggregate values of government receipts and trans-fers. We then assume that the age and sex-specific average values ofthese payments and receipts in future years equal those calculated for1990 adjusted for an assumed growth rate.

To provide an example of this procedure in a simple two-period con-text where there are only young and old, suppose total receipts of acertain type at a given date equals $1000 and suppose we know that theaverage payment of old people equals twice the average for the young.Also suppose we know that there are 200 young and 150 old. Then theamount paid by each young person Z must satisfy: $1000 = Z x 200 + Zx 2 x 150. Solving this equation for Z and multiplying by 2 gives theamount paid on average by old people. If the growth rate is g, then theprojected payment of the young (old) k periods from now is Z x (1 +g)k[2x Z x (l+gf].

More generally, we denote by R™ • (R{aA) average value of the zth pay-

ment or receipt made by (received by) an age a male (female) in 1984divided by the average value of the type i payment (receipt) made by 40-year-old males in 1984. Let Hjt denote the aggregate revenues (expendi-tures) of type i received by (made by) the government in year t (1990).Finally, let hm

ait and hlait denote, respectively, the average values for

males and females of payment (receipt) i in year t. Then we have

_ D

]-f = hm V [Rm Pm +R f Pf I (A\n i t n 40,i,t2j L^j'i1 t.t-jT^j.i1 t,t-jl V*)

;=0

Equation (4) states that total payments (receipts) of type / in year t equalsthe average value of these payments (receipts) for 40-year-old malestimes the cross-product of the age-sex profile for payment (receipt) i andthe population by age and sex. We use equation (4) to solve for hm^it. Thevalues of the hm

aits a 40 and the Ffl/,-,fs are obtained by multiplying /Jm4CU,

by Rma, and R£

ai, respectively. We assume that /zmfl, s and h(

ajs for s>t equaltheir respective year t values multiplied by an assumed growth factor.


The term Tsk for males (for females) in equation (2) is determined bysumming over i the values of hm

s_kis (h{s_kis).

Clearly for certain types of payments and receipts, such as Medicarebenefits, the choice of the proper growth factor may be particularlydifficult. But rather than choose one value, we present results for differ-ent growth rate assumptions. The same type of sensitivity analysis ap-plies to the choice of the interest rate to be used in the discounting.Although the absolute magnitude of the terms in the government's in-tertemporal budget constraint are sensitive to these assumptions, theassessment of the burden being placed on future generations relative tothat being placed on current generations happens not to be very sensi-tive to these assumptions.

C. The Treatment of Labor Income TaxesWe determine the relative profile of total labor income by age and sexfrom the SIPP data and apply this profile to aggregate labor incometaxes. The aggregate value of labor income tax payments is calculated as80.4% of total federal, state, and local income taxes, where 80.4 is labor'sshare of net national product. In calculating labor's share of net nationalproduct we assume that labor's share of proprietorship and partnershipincome as well as its share of indirect tax payments equals its share ofnet national product. The resulting figure for aggregate labor incometaxes is $446.1 billion.

D. The Treatment of Contributions for Social InsuranceWe used information on labor earnings in the SIPP to infer the amount ofFICA taxes paid by each household member. From these data we thendetermined the relative profile of FICA tax payments by age and sex. Thisprofile was benchmarked against aggregate social insurance contribu-tions, including contributions by government workers to their pensionfunds. The 1989 value of aggregate contributions for social insurance is$476.8 billion.

E. The Treatment of Capital Income TaxesTaxes on capital income require special treatment. There are two relatedreasons for this. First, unlike other taxes, taxes on capital income may becapitalized into the value of existing (old) assets. Second, the time pat-tern of income and tax payments may differ. As a result of these featuresof capital income taxes, such taxes must be attributed with care to ensurethat they are assigned to the proper generation. If all forms of capitalincome were taxed at the same rate, there would be no such problem: allassets would yield the same rate of return before tax (adjusted for risk)


and each individual would face a rate of return reduced by the full extentof the tax. However, if tax rates on the income from some assets, typi-cally older ones, are higher than those facing income from new assets(e.g., because of investment incentives targeted toward new investment)a simple arbitrage argument (see, for example, Auerbach and Kotlikoff,1987, Chapter 9) indicates that the extra tax burden on the old assetsshould be capitalized into these assets' values, reflecting their less favor-able treatment. This suggests that the flow of capital income taxes over-states the burden on new investment. On the other hand, the presenceof accelerated depreciation allowances works in the opposite direction,since initial tax payments from new investment understate the long-runtax burden on such investments. Although current tax payments over-state the tax burden on new capital by their inclusion of taxes that arealready capitalized in the value of existing assets, the understatement ofthe burden on new investment works in the opposite direction.

We require a method that calculates the value of capitalized taxes andcorrects the flow of taxes for these two measurement problems. Theappendix provides such a method. To illustrate the nature of the correc-tion, consider the case of cash-flow taxation in which assets are writtenoff immediately. A well-known result is that the effective marginal capi-tal income tax rate under cash-flow taxation is zero. However, taxeswould be collected each year on existing capital assets, and such assetsshould therefore be valued at a discount. Assigning these taxes to theassets' initial owners, rather than members of future generations whomay purchase the assets, is consistent with the fact that such futuregenerations of individuals may freely invest in new assets and pay a zerorate of tax on the resulting income. Our correction to actual tax paymentsshould, in this case, result in a zero tax burden on the income from newassets.

The principle underlying our treatment of intramarginal capital in-come taxes and the discounting of other payments and receipts at pretaxrates of return is that one can express private intertemporal budget con-straints in the presence of government behavior as (1) the budget con-straint that would prevail in the absence of the government with (2) asingle modification to the present value of resources that equals, Nt k, thepresent value of the generation's net payment to the government, i.e.,one can express private budgets in terms of pretax prices less net taxesvalued at pretax prices. In the case of our adjustment for intramarginalcapital income taxes we are simply valuing capital at its pretax price andtreating the capitalized value of taxes as another payment required bythe government from the owners of that capital.

In allocating capital income taxes we (1) correct our estimate of future


capital income taxes to account for their inclusion of taxes on old capitaland the generational timing of capital income taxes, (2) use equation (4)and the SIPP profile of private net wealth holdings by age and sex toallocate total 1989 taxes on new capital by age and sex, (3) project futurecapital income taxes by age and sex using the 1989 age- and sex-specificvalues adjusted for growth, and (4) allocate to 1989 owners of capital as aone time tax payment the 1989 capitalized value of the excess taxation ofolder capital. The allocation of this one time tax by age and sex is basedon the SIPP profile of asset holdings by age and sex. Note that in thebudget constraint of each existing generation we value their holdings ofexisting capital at market value plus the capitalized value of intramar-ginal taxes.

In these calculations we set aggregate capital income taxes equal to19.6% (capital's share of net national product) of total federal, state, andlocal income taxes, plus federal, state, and local corporate taxes (exclud-ing the profits of the U.S. Federal Reserve System), plus estate taxes.The resulting value of 1989 aggregate capital income taxes is $234.9 bil-lion. Using the method described in the Appendix, we estimate that the1989 flow of capital income taxes overstated the capital income tax bur-den on new investment by $6.09 billion and that the capitalized value ofexcess taxes on old capital equals $609 billion. These estimates are calcu-lated in the following manner. We take the value of nonresidential equip-ment plus structures plus the value of nonowner occupied housingowned by taxable investors (both of which are reported in the FederalReserve Flow of Funds for 1989), $5,488.8 trillion, and multiply this by11.1%, our estimate of the tax-induced percentage difference betweenthe market value and replacement cost of these assets. We allocate the$609 billion ($5,488.8 x .111) in capitalized taxes as a one time tax tothose age- and sex-specific 1989 cohorts according to the SIPP profile ofrelative net wealth holdings by age and sex.

F. Including the Present Value of Government Seignorage in the

Another form of payment to the government is the seignorage it collectson private holdings of money balances. Net of the negligible costs ofprinting money, the government collects, in each year, resources equalto the real value of new money printed. In holding this money, house-holds forego the nominal rate of return available on other assets.

Our strategy for attributing seignorage to different generations may beillustrated using the analogy of an excise tax on durable goods. Supposethe government levied such an excise tax. Households would thenspend more to obtain durables, and would therefore face a higher im-


puted cost of using them until the durables had depreciated or weresold. If the durable good were sold (tax free) in the future, it wouldcommand a price in excess of its replacement cost, reflecting thearbitrage with respect to new durables facing the excise tax. A measureof the net fiscal burden imposed on the household by the excise tax is thetax payment made by the household on purchase less this recoupmentof the tax upon sale, discounted to the present. In the same way, weattribute the burden of seignorage to households of particular genera-tions by treating the entire acquisition of money balances as a paymentto the government and the disposition of money balances as a transferfrom the government. This has the effect of imputing a cost equal to thenominal interest rate on the holding of money balances, and also attri-butes to all current and future generations taken together a total fiscalburden equal to the present value of government receipts from printingmoney.

We add the present value of such seignorage payments to the presentvalue of other net payments in forming the Ntks. Specifically, we projectaverage money balances held by each age- and sex-specific generationthrough the remainder of its life and add each year's net acquisitions(positive or negative) of the monetary base to the Ntks. As with all ourcalculations, we have been careful to benchmark against national aggre-gates. In this case we have ensured that the sum of age- and sex-specificgeneration net acquisitions of the monetary base sums to the December1988 to December 1989 change in aggregate base money, which equals$21.6 billion.

G. Including Excise Taxes in the NtksExcise tax payments are not included in the SIPP data. To determine theamount of excise taxes paid by the age- and sex-specific generations weuse the CES data. We use these calculations as well to project eachgeneration's annual flow and present value of excise taxes. Our bench-mark value of aggregate 1989 excise taxes of $414.0 billion equals the1989 NIPA value of total excise taxes, less total property taxes, plusbusiness property taxes, i.e., we include in excise taxes only those prop-erty taxes assessed on business. We use the Department of Commerce's(1987) share of business property tax assessments in total (business plusresidential) property tax assessments to divide total property taxes be-tween business and residences. This share is 43.9%. In determining the1989 NIPA value of total excise taxes we include those state and localproperty and excise taxes listed in the NIPA accounts as "Personal Taxand Nontax Receipts." We do not, however, include those nontax re-ceipts that are included as part of "Personal Tax and Nontax Receipts" as


excise taxes. Instead, we treat these items, which include tuition andhospital charges, as a return to government assets.

H. Including Residential Property Taxes in the NtiksWe treat residential property taxes as excise taxes on home ownershipand allocate these taxes by age and sex using an age-sex profile ofrelative house values. This profile was obtained from the SIPP data for1984. In this calculation house values for married couples were dividedevenly between the spouses. As in the case of other taxes, we bench-mark average property taxes by age and sex using the 1989 value of totalresidential property taxes, which equals $62.4 billion, and we projectfuture average property tax payments using the 1989 age- and sex-specific averages with an adjustment for growth.

/. Treatment of Social Security and Other Government TransfersWe divide total government transfer payments excluding federal, state,and local civil service, railroad retirement, and veterans benefits into sixcategories: OASDI (including Federal Supplementary Security Income),HI (Medicare), AFDC, General Welfare (including Medicare), UI (unem-ployment insurance), and Food Stamps (including WIC). We use theSIPP data to determine relative profiles by age and sex of each of thesecategories of government transfers. To determine average 1989 valuesof these transfer payments by age and sex we benchmark the relativeprofiles against the NIPA aggregates using equation (4). The absoluteaverage values of each type of transfer payment by age and sex infuture years are assumed to equal their respective 1989 values adjustedfor growth. The one exception to this procedure is with respect tofuture social security benefits. We make a rough adjustment for theimpact for the 1983 Social Security amendments on future benefits ofthe baby boom and subsequent generations. These amendments re-duced future social security benefits by (1) phasing in a 2-year delay inthe receipt of normal retirement and (2) subjecting an increasing shareof social security benefits to federal income taxation. Our adjustmentinvolves reducing the average social security benefits of each new co-hort that reaches age 65 in the year 2000 and beyond. The reduction ineach year's post-age 65 benefits is 1% for cohorts who are age 65 in theyear 2000. It is 2% for cohorts who are age 65 in 2001, 3% for cohortswho are age 65 in 2002, etc., with a maximum reduction of 15%, i.e.,cohorts who reach age 65 in 2014 or later experience a 15% reduction inthe average annual value of their post-age 64 social security benefitsrelative to the growth adjusted value of post-age 64 social securitybenefits prevailing in 1989.


J. Calculating the Present Value of Government ConsumptionOur procedure for projecting the future path of total government con-sumption is to decompose total 1990 government consumption expendi-ture into (1) expenditures on those age 0-24, 25-64, and 65+ and (2)non-age-specific expenditures, such as defense.3 We denote year t expen-ditures on those age 0 to 24 divided by the year t population age 0 to 64as gyt, where y stands for young. We denote gmt and got as the corre-sponding year t average government consumption expenditures on themiddle age (those 25 to 64) and old (those 65 and older). Finally, wedenote gt as the year t level of non-age-specific government expendituredivided by the total year t population. We assume that the values of gys,gms, gos, and gs for s>t equal their respective year t values multiplied by acommon growth factor. Total government consumption expenditure inyear s is then determined as

Gs = gy,sPyiS + gm,sPm,s + goAs + if. (5)

where Pys, Pms/ Pos, and Ps stand for the population of young, middleage, old, and the total population in year s. We use the OECD's 1986division of total U.S. government consumption expenditures amongthe four expenditure categories plus our benchmark value of aggregateexpenditures, Gs, to determine the values of gy „ gmt, got, and gt. TheOECD's division of U.S. government consumption expenditures was29.1% on the young (age 0-24), 6.0% on the middle age (age 25-64),7.1% on the old (65+), and the remaining 57.8% on the total popula-tion. Our measure of Gt is the 1989 NIPA value of total governmentconsumption expenditures plus the value of civil service, military, andveterans retirement, medical, and disability benefits. We include theseadditional payments as part of government consumption rather than astransfer payments because they are part of government compensation

3 The fact that components of government consumption expenditure are targeted towardspecific age groups suggests including the present value of such expenditures in formingthe N as and the Csks in equation (3). In future work we intend to present the generationalaccounts both including and excluding the present value of age-specific government con-sumption spending in forming the N(Jts and the Csks. However, for the economic, asopposed to accounting questions, of how the Ntks of future generations compare with thatof the current newborn generation and how changes in policy will change the values of theNtks for existing generations, the inclusion or exclusion of age-specific government con-sumption spending on existing generations is irrelevant, i.e., the analysis of the differen-tial incidence of redistributing the burden across generations of paying for the govern-ment's consumption can be conducted holding the generational pattern of governmentconsumption expenditures constant.


to its employees. The resulting value for 1989 total government con-sumption expenditure is $1,154 trillion.

An important issue that arises in considering government as well asprivate consumption is the treatment of durables. The proper economictreatment involves imputing rent on private and government durablesand including this rent (and excluding expenditures on durables) inprivate and government consumption, respectively. Except for housing,however, the National Income and Product Accounts treats expendi-tures on durables as current consumption. Although we follow theNIP A treatment of durables in this paper, our future analysis will adjustfor the proper economic treatment of private and government durablesexpenditures.

K. Determining Government Net WealthSince we want our generational accounts and analysis of different genera-tions' private budget constraints to be consistent with National Incomeand Product Account data, including the total (federal, state, and local)government deficit, we take as our measure of 1989 total government netwealth net government interest payments divided by the sum of (1) ourassumed real interest rate and (2) an assumed 5% inflation rate.4 Ourmeasure of government net interest payments is $79.4 billion smallerthan the NIPA figure of $131.8 billion because we categorize state andlocal nontax receipts as positive capital income earned on state and localassets. Assuming a 6% real interest rate the 1989 value of governmentnet wealth is -$571 billion.

L. Determining Private Sector WealthThe 1984 SIPP data are used to determine the age- and sex-specific rela-tive wealth profile. Specifically, we calculate the weighted average val-ues of net wealth by age and sex for 1984 and normalize these values bythe weighted average value of net wealth of 40-year-old males. Thisprovides values of Qm

a and Qffl, the relative age-sex wealth profile. Total

private sector wealth in 1989 can then be written as

(6)

4 In future work in which we will measure imputed rent on government durables we willalso take account of government tangible assets using measurements reported by Eisnerand Pieper (1984) and Boskin et al. (1987).

74: Auerbach, Gokhale & Kotlikoff

where qmA0A stands for the average wealth of a 40-year-old male in year t,

and VVPf is total 1989 private net wealth. Equation (6) may be used tosolve for ~qm

m. The corresponding values of ~qmat, a ^ 40, and lfat are

determined by multiplying ^m401 by Qm

; and Qf;, respectively.

In using the SIPP data we distribute household wealth to the owner ofthat wealth, where the ownership is indicated. In the case of marriedcouples, we allocate half of the household's total wealth to each spouse.We set future values of net wealth by age and sex equal to the 1989values adjusted for growth.

M. The Choice of Interest RateThe government budget constraint given in (1) depends crucially on thechoice of the interest rate r that is used in discounting future flows to andfrom the government sector. If all such flows were certain and riskless, itwould clearly be appropriate to use the government's borrowing rate,essentially a risk-free rate, in our calculations. Given that these flows areonly estimated however, which rate is appropriate to use?

The answer to this question depends on what we mean by fiscal bal-ance in the presence of uncertainty. On the one hand, there is a straight-forward argument that the government's actual borrowing rate is stillappropriate. Suppose, for example, that a future receipt has an expectedvalue of, say, x, but that the true value of the receipt may turn out to behigher or lower. If it is higher, the government will have to borrow a bitmore; if it is less, less borrowing will be required. Assuming that thegovernment's borrowing rate is not affected by these fluctuations, thediscounted values will cancel in a calculation of expected discountedrevenue, leaving the discounted value of the expected revenue x in thebudget constraint. Thus, if we wish to consider the payments from fu-ture generations that we expect will be needed to provide fiscal balance,the procedure based on expected flows discounted with the govern-ment's borrowing rate is correct.

However, expected fiscal balance may not be the only valid measure,or even the most informative about fiscal incidence. After all, raising afuture individual's fiscal burden by $100 in some cases and lowering it by$100 with the same probability in others need not be a matter of indiffer-ence to the individual if he is risk averse. If the increased burden isassociated with other negative news (as will be true, for example, ifgovernment revenue needs rise during recessions), then these devia-tions from expected revenues will not cancel from the taxpayer's perspec-tive. To reflect this, we might wish to discount future receipts with ahigher discount rate that accounts for this risk. The effect will be to raisethe level of receipts necessary for fiscal balance to be achieved, reflecting


the fact that the burden of uncertain taxes exceeds their expected value.Likewise, the treatment of government spending and transfers shouldbe adjusted for risk, although one should use the same discount rateonly if the fluctuations in such spending have the same risk characteris-tics as taxes do.

In our simulations below, we make different interest rate assumptions incalculating fiscal balance. This will accommodate the alternative views justdiscussed. The first approach is to apply a low, risk-free rate to the pro-jected flows, in keeping with the view of fiscal balance as expected balance.The second is to apply a market rate, adjusted for risk, in our discounting ofall the flows in the government's budget constraint. This approach is con-sistent with fiscal balance being satisfied in risk-adjusted terms.

VI. FINDINGS

A. The Burden on Future Generations

Tables 1 and 2 contain the generational accounts for males and femalesfor different combinations of growth rate and interest rate assumptions.Tables la-c and 2a-c contain the same information for alternative as-sumptions about population structure, the treatment of capital incometaxation and the discount rate, which we will discuss after reviewing theresults in the first two tables.

All of these tables show positive values for the accounts for young andmiddle age cohorts alive in 1989, indicating that these generations will,on balance, pay more in present value than they receive. For generationsof males age 65 and older the net present value of payments is negative.This primarily reflects the fact that older generations, whose membersare typically retired, can expect to pay relatively little in labor incometaxes and payroll taxes over the rest of their lives, while receiving signifi-cant social security medicare and retirement benefits. For females, thegenerational accounts are negative for ages 55 and over. The youngerage at which this occurs for women is attributable to the lower laborforce participation rates of women and the fact that many women re-ceive social security benefits as dependents of older spouses.

In Tables 1 and 2 the values of the accounts more than double betweenage zero and age 25. For example, in the case g=.0075 and r=.O6 (whichwe take as our "base case") the age zero account for males is $73.7thousand and the age 25 account is $193.0 thousand. This simply reflectsthe fact that 25 year olds are closer to their peak taxpaying years than arenewborns. The accounts are most negative around age 75. For the basecase, the age 75 account is —$41.5 thousand.


3CQ

Is,3

1O

4^

«iS;O

K

O

N

I3

aou

in

o

if

mI N

II

oIIII

a

I NO

IIV.

o

II

moII»

t No

if

NO

oIIII

inoII

I No

II

if

moif

boyC

ccaC

ON

.s

H ^ 0 ( J \ H H O \ 0 0 O HH H H H [ N | ( N r - l i — I r H r — I

I I I I I

I I I

I 00

omoinoinoiorH T-H CM tN CO CD

m o00 ON

inON

oo

' rH

inON

O•£32

£1PL,


5

saCa-a

s

•Si

3l !siI

I

8

01

C ooO ON

S

rJMMtntS

N 0 m ( N t SI I I I I

N M O f n n

I I I I

oiooinoinomoLnoinomoinO

23 01

3 w


u

£ou

<3

' &<5

«

Q

| |

o 1

o

fs

tsfO

Tj

Raou

i n

o•

IIto

INoll"

oIIII

moII

i nINooII

oll'

ooII

i noII

IN

oII

oII*V.

oII

in

oll'

0>

botoenC ooO ON

2 Scc

f0^^^r0 | ON| | | | |

HVOiriOlNTf HfotNia\(Nin^ - ^- ^ in î ro i (N

| | | | | t—I

in m m i| | | | '

d ^ Q O O N ^ t o ^ v d v d i n t ^ t i ^ ixr - H , — I T — I ^ H ^ H I - H I | | | |

Hvqoq^H'tqoqoooNtsooH^ • < *fOfOfO(NioN(Nida\a\N6cnvd ONo\ONooNino\OHco^'f'*n | ON

^ O O N O N ' r f i n T — i N r - I O T - i r O O N ' * t—i

6^6^Nu!6'0^rt6(Nicovc CNN H O 0 0 i n O * •<*iinin'*|rO I CO

C N l f N C N t — I T — I T — I | | | | | ' t—I

OHN^r0in in '* '*N00f0N^ ON

inHiNrJiNrirovDro^fOooTHvD - învoininfOovOHrfj^'icoco | vcT-lT-lT-HT-lt-lt-l | | | | |

oqrHvqfN(cO'*ONinoqinff\N'^^ tN'<to6r-Jt'i'*'in'tNirovoiNina^tsvd r-5KNNvoôvOTHrn^^com | oot-lt-lT-lT-Hl-ll-l | | | | |

inHtNq^DONVDqK^pMHN^ COooodiNinHiNHdddooHfivo inO N O N O o t r v i n o v O t — i ^ f i n ^ ' ^ c o | oT- IT - IT - IT - IT - IT - I I I I I I ^

o m o m o int-H T-H CN CM

m o in

^ mmin o in

CQJ


N

o

IT)CO

o

CM

o

in

2

mCNo

mCOo

mCMo

C ooO ON

u

01

0)

O

I I I I I

CNfNrOfOCOfOCNCNCN n m n T F r oI I I I I

CNCOCO

aNcoo^<^rHCMOcocM^oo^NqaN\£>oqooin ONONONCOCO CO CO CO CO CO I I ,

I I I I I

I I I I I

C N C N C M C O C O C O C M C M I I I

oooCM

ON

CM

O NO NCM

CN CN r s | CN CNco - ^ co CN I m

I I I I I ^

inNOM^O^NOHH(N|N(N|tNM(NO)

CM CN CM < N CN CN

oq rH in in t>.

•• -• - r s iCM

^ n t ^ c oI I I I I


o

a

N

C ooO ON3

c

I I I I I I

I I I I I

IN \£>I

I I I I I I

in

t n n * Î I I I I I

i co

CN CO C) t< O CNCN in vo in in

I I I I I I

I I I I I I

00 00 O IT)

I I I I I I

•<* m

IN" inI

NONcinoNHNr-1 IO ID •* ^1 I

I I I I I I

n n n *I I I I I I

OlOOlDOlOOiOOlOOlOOiOOlOOinO^H r~H C J f \ | CO CO ^ ^ ^t^ LO LO Ô Ô t x t*N 00 CO O^

o

2


•2a1

S©

.3

5

N

.015

II

.007

5

II

oiiitbe

tN

oif

= .06

II

8if

= .0

7

II

= .06

I I

II

.07

II

II

= .0

5

II

0)00(«

atio

n's

i\1

98

9G

ener ir

COfNlOOOOCOOOtN 00

M I N I 1

I I I I I I

tN OsI "*

N o T r * *I I I I I I

o * ^ ^ oI I I I I I

IDSO

^ oi co

I I I I I I

in N vo o so•^ ID IN Os OS

(N"<tfsO,—icOOOOCOr-HsOOlNNsoin^Hrsi^irjiO'1*^ i

I I I I I I

OS 00 CO 00H CS t1 ID

I I I I I

I I I I I

I I I I I

INCOco

oco

U C3 o»•a bo


S

I

w

ISi5

3R

8N

C ooO ON

aiCa;U

V O N

00 CM CO O

tN in o o inI I I I I

H(N«)^ in in t sco vo vo vo in i

I I I I I I

dôoooN N \o m

I I I

I I I I I

m O O o n Î I I I I I

I I I I

i i i i i i

NooincN^^NOA IT) O \D IT) -^ I

I I I I I I

otnoinoinoinoinoinoinoino

ino

ooo

ts ooi ro

Ô t**N ^ ^ T~H CO ^ * D*N CT\( N i n vO vO I O ^ I • *

I I I I I I

co•G(0

V ^

+i wo


u

wPQ<

R

a©

Ro

<3<s

<U

tin

O

N

I5

for

ou

mo

if

m

IItoo

oIItoo

<LKu<re</

V £_C4-ccacaC

mCOoII

COC5

IIV.

moif

m

= .0

3

CDO

if

CNO

IIii

mCOoII

= .0

3

II

inCNoII

u

^ ^ ^ ^ ^ ^ I I I I I I I ' "-1

GO 00 O J C*N] H LO C^ C^S GO ^ CO ^ C*l -Q GO r C*N] t'N ^ 00^^H ^^ f^ f\j GO C? P GO -O t\ CO ^ tj\ LO ^ LO ^ t s t^ T™^

rH »-• rH i-H T-H T-H rH I I I I I I ^

CO CO ^}^ ^^ ^1^ CO ^ O^ C* ^ CO Q O*\ 00 t N vQ ^ i v>^i

'-I^H^-I'-H^H^^H I I I I I I I ^

T-H I—I T—( T—I r H I I I I I I

ONOrHHCSNHIJiOOiniNH^NNlNir)'* | H^ ^ ^ ^ ^ ^ I I I I I I I ^

l_O LO GO ^ ^ CO LO CJ CO "" GO LO -O \O *O SO CO CO ^ \^^|iv i ^ \^Q fs^ ^ Q O LO J1^ 00 <O LO C**>J CN| CO t.. y 0*% t^ c 3

r-l T-H i-l T-H r-H r-l l-l I I I I I I I ^

fsj O4 D x LO D* T^ ^ LO T*H r""*3 f*0 ~ LO LO X^ ^ LO ^ C* LO^ D t** GO O*\ ^ C5 ' O^ GO D CO I CO -O O 5 LO 4^ I t N

^ <-" I I I I I I

LO * LO D"* ^ ^ CO LO ly«O -O \-O H t^ H f^ C*N1 V O Lf} ^ ^f\i f*o L x CO LO LO GO [*% ^ 00 O^ LO C' 3 c 3 CO t s * O LO C N 00

^H^^lr-i ' I I I i I I '

^H ^ 4 QQ £Nj fT^ t^^ ^H GO T""H LO LO CD3 V*O ^ ^ " 0 ON GO ^ O DX CO0 0 O^ ^D T~^ CN C J ^ ^ O N GO LO CN| T ^ ^ ^ tS* Cx *O LO ^ ^ I CT?

' - I ' - ( ^ H ^ H ^ - 1 i i i i i i i "-1

o i n o m o L n o i n o i n o i n o i n o i n o i n oNicocot|*inino\x>t>tsooooCT "TO

tin


The bottom row of each table, labeled "Future Generations," indicatesthe present value of amounts that males and females born in 1990 will,on average, pay, assuming that subsequent generations pay this sameamount except for an adjustment for growth. For the base case, thisamount is $89.5 thousand for males. This means that males born in 1990will be greeted with a bill from all levels of government of $89.5 thou-sand, which is 21.4% larger than the bill facing 1989 age zero males.Males born in 1991 will face a bill for $90.2 thousand, which equals $89.5thousand multiplied by 1.0075 (1 plus the growth rate); males born in1992 will pay $90.8 thousand ($89.5 times 1.0075 squared), and so forth.For females born in 1990, the bill will be $44.2 thousand, based on theassumption that future female and male "birth bills" have the same ratioas those of age zero males and females in 1989.

Tables la-c (males) and 2a-c (females) present the same calculationsunder different assumptions. Tables la and 2a show the results of assum-ing that no further demographic change will occur in the United States,i.e., that the population age distribution will be constant after 1990.These tables are helpful in understanding the fiscal impact of the continu-ing demographic transition to an older population. These tables indicatethat, were the population structure to remain constant, younger genera-tions, those that will bear the brunt of the demographic shift's fiscalburdens, would be better off. This is particularly true for males.

Tables lb and 2b demonstrate the importance of our special treatmentof capital income taxes. Treating all capital income taxes as marginal taxeson new capital income lowers the fiscal burden on older living genera-tions, since these groups are no longer being assigned the reduction incapital values associated with the inframarginal taxation of old capital.Very young living generations would face a somewhat higher fiscal bur-den, since these groups hold little capital and will face many years ofsomewhat higher marginal tax rates. On balance, the reduced capitalincome taxes facing older living generations and the slightly increasedcapital income taxes facing younger living generations imply a consider-ably larger burden on future generations. For the base case parameters thepercentage difference in the accounts between age zero generations andfuture generations is now 34.3 rather than 21.4%. Thus, failure to takeaccount of the capitalization of some capital income taxes causes one tounderstate the viability of the current tax structure by ignoring the taxesthat will be collected on the income from previously acquired capital.

As we indicated above, the choice of which discount rate to use inthese tables depends on how one interprets the concept of fiscal balancein the context of uncertainty. The preceding tables have provided esti-mates for a range of estimates around 6%, corresponding to our "high"


interest rate assumption. Tables lc and 2c repeat the exercise of Tables 1and 2, but for a lower range of interest rates centered around 3%, closerto the real government borrowing rate. The most significant effect of thischange is to increase the measured burdens facing newborns, sincethese are based largely on discounted payments and receipts that willoccur many years hence. However, the same conclusion reached above,that the burdens must rise for future generations, still holds here.

The robustness of this last result is amplified by Table 3, which pres-ents for a wide range of growth/interest rate combinations the percent-age difference in accounts of age zero and future generations. The tableindicates that for a range of reasonable interest and growth rate assump-tions future generations will face larger fiscal burdens than current agezero generations based on current policy. For the base case, the differ-ence is 21.4%. For the low interest rate case with the same rate of produc-tivity growth (r=.O3, g=.0075), the percentage difference is larger,namely 22.5%. More optimistic growth rate assumptions do not materi-ally affect the conclusion of a roughly 20% larger burden on futuregenerations compared with current generations.

B. The Composition of Generational AccountsAppendix Tables 1 and 2 provide for current male and female generationsa breakdown of the accounts by different types of receipts and expendi-tures. The growth and interest rates used in the table are the base casevalues. All figures are present values. Take the case of 30-year-old males.On average, the 1989 cohort of 30-year-old males will pay $194.5 thousanddollars in present value to the government over the course of their remain-ing lives. The $194.5 thousand dollar figure reflects the difference be-tween $222.8 in present value of payments to the government less $28.3thousand in present value of receipts from the government. The largestsource of present value payments is the $74.4 thousand in FICA and otherpayroll taxes, followed by $69.6 thousand in labor income taxes, $38.4thousand in capital income taxes, and $34.2 thousand in excise taxes. Thelargest sources of present value receipts are $14.3 thousand in social secu-rity OASDI benefits, followed by $5.4 thousand in general welfare (whichincludes Medicaid), $4.6 thousand in Medicare, and $.9 thousand in foodstamps.

Appendix Tables 3 and 4 further clarify the determinants of thesepresent values. They detail for different 1989 male and female genera-tions the annual flows of payments and receipts (measured in constant1989 dollars) members of these generations are projected to pay, onaverage, in specific years in the future. For the 1989 cohort of 30-year-oldmales, total 1989 net payments average $11,271.7. Their average net pay-


5a

Nm bow ^

pa J

ouu

s

i

CO

oll'too

too

too

OIItoo

C N C N C N C N C N t — I T - H I — i

CONMHONNINNIN

CO IN. Tf CN00 i n CN vD

(N(NHHCN CN CN CN

N CO N

HHHOCN CN CN CN

OOOOOOOt-Hoooooooo


merits 30 years later when they reach age 60 are projected to equal$25,809. The tables show clearly the age pattern of the government'svarious payments and receipts. For example, OASDI benefits for 198930-year-old males average only $84, but grow to $8168.1 at age 80.

C. The Effect of Policy Changes on Generational AccountsTables 4 and 4a explore the impact on generational accounts of a varietyof alternative fiscal policies assuming 6 and 3% rates of interest respec-tively. Both tables assume the base case 0.0075 growth rate. The tablescompare the generational accounts of newborn and future generationsprior to and after the change in policy. Appendix Tables 5 and 6 indicatethe impact on the generational accounts of older generations of thevarious policies assuming base case parameter values; Tables 5a and 6arepeat the analysis assuming a 3% interest rate.

Capital Gains Tax Cut The first policy considered is the Administra-tion's 1989 capital gains tax cut proposal. In analyzing this proposal weused the Joint Committee on Taxation's (the JCT) revenue estimates;specifically, we raised or lowered projected cohort-specific future aver-age capital income tax payments each year in the future by a factor thatwould leave total projected capital income tax payments in that yearlarger or smaller by the amount of revenue gain or loss projected by theJCT. The results of this experiment indicate the Administration's pro-posal would place an additional burden equal to $1300 ($700) in presentvalue on each future generation of males (females). Appendix Tables 5and 6 and 5a and 6a indicate that most of the benefits from the capitalgains proposal would accrue to currently middle age generations. Forexample, assuming base case parameters, 45-year-old males are, on aver-age, projected to receive roughly $600 in present value as a result of thecapital gains proposal.

No Reduction in Social Security The next policy experiment involves acancellation of the 1983 Social Security amendments. In this simulationwe do not reduce future social security benefits of generations attainingage 65 in the year 2000 and beyond according to the procedure describedin Section VI. The impact of reversing the Social Security amendments isparticularly strong for middle age women. According to Appendix Table6, for base case parameters, 35-year-old women would benefit by $1,800in present value from such a reversal in policy.

Faster Medicare Growth The third policy we consider is faster growth inmedicare expenditures. Rather than projecting current spending levels


i

•s§

s3 V©

W £ §>

8S

2a©

U

u

c c

u 95 >>5 «

• 2 '?

12

IlllT3 Q

•§ c 3

01 U

O tN

2 I

o tIN COIN I

T—I

00

O

inINoON

i—(

I

NOT-H

INCOIN

OCOON0 0ON

CO

2 01


KO

5

o

a

8°.

< i &

so

u

21

IS

bJD

I S^ 8

01 U

—t o

u a

ONCOOCM

inONCMOl-H

CN

inONCNOl-H

CM

OmCM

ONrHf\|COCOCM

00\^I_OCO

oCM

oCM

ON

O

CNCO|

00ONINCOoCM

ONCOinCN

OCN00oinCN

ON

CN

ON

NO

INCO

CNCM

So


forward at the growth rate of other spending, we assume that medicalcosts will continue to rise more quickly than other government ex-penses. In particular we assume that the rate of growth of Medicareexpenditures is two percentage points higher than the economy'sgrowth rate for the 20-year period between 1990 and 2010. The experi-ment produces a sharp jump in the extra burden to be placed on futuregenerations: with base case parameters newborns in 1990 will face anextra burden of $15,800 for males and $7,200 for females; these figurestranslate into a 41.6% larger burden on future generations than on cur-rent age zero generations. The simulated Medicare policy provides asizable benefit to existing older generations. For example, 65-year-oldmales are estimated to receive an additional $5,100 in present value fromthis policy option.

Given the extraordinary growth in health care spending in recentyears, one might well believe that this simulation represents a morerealistic view of current policy than our "current policy" projectionwhich assumes only trend growth in Medicare. Clearly, one is free toconsider alternative views of what constitutes the expected near andlonger term treatment of current generations. Ideally, one would haveinformation on the public's expectation of the future treatment of currentgenerations to guide the formation of the "current policy" projection.Certainly there is no reason in assessing current policy to restrict oneselfto what is actually legislated. We offer our "current policy" projection asan initial benchmark from which to consider possibly more realistic as-sessments of the future treatment of current generations.

Savings and Loan Bailout The recent savings and loan debacle andbailout illustrates the difficulties of measuring the deficit. The episodeincluded debates about whether bailout financing should be "off-budget"and whether the funds raised should "count" toward the Gramm-Rudman-Hollings targets. Such discussions are really irrelevant if one isinterested in determining who will bear the costs of this mammoth newgovernment spending program. To model this, we assume that the gov-ernment issues $500 billion dollars of new bonds in 1990 to make good theclaims against the insolvent S&Ls, and raises taxes only on new genera-tions. We treat the bailout essentially as the undoing of a casualty loss, inthat the current generations are assumed to be kept whole by the bailout,i.e., the $500 billion simply offsets $500 billion in losses due to the insolven-cies. Tables 4 and 4a indicate that this exercise will cost each 1990 newbornmale $9,446 assuming a 6% interest rate and $4,200 assuming a 3% interestrate.


Slower Growth in Government Consumption One of the goals of thosewho seek to improve the fiscal situation is to "get spending under con-trol." We model this by simulating the effects of zero growth in govern-ment consumption for a period of 10 years with the growth in governmentconsumption after the 10-year period occurring at the assumed economy-wide growth rate. For base case parameters, the impact of this reducedspending is to lower the burden of future generations substantially, by$24,672 per male and $12,200 per female. The reason this policy has such alarge impact can be understood by considering the size of its effect withreference to the terms entering the government's intertemporal budgetconstraint given in equation (1). Under our base case assumptions thepresent value of government consumption is $25,385 trillion, the presentvalue of payments by existing generations is $20,998 trillion, governmentnet wealth is minus $.516 trillion, and the present value of payments byfuture generations is $4,903 trillion. The simulated 10-year policy of zerogrowth in government consumption followed by trend growth means thelevel of government consumption in year 10 and beyond is lower thanunder the "current policy" simulation. The effect of this policy is to lowerthe present value of government consumption by $1,306 trillion, which issizable compared to what would otherwise be the burden on future gen-erations, namely $4,903 trillion.

The Government's New Budget Deal We examine three alternativeviews of the recent budget deal. The first alternative, labeled A, assumesthat the changes made to taxes and spending will be permanent; thesecond, labeled B, assumes that only the reductions in government con-sumption spending will be permanent; and the third, labeled C, as-sumes that the provisions will last for only 5 years, after which taxes andgovernment consumption spending will revert to the values they wouldhave had without the budget deal.5 The results indicate that the impor-tance of the budget deal depends very much on its duration. If the deal istemporary, case C, future male generations will benefit by $6,374, whileif it is permanent, case A, they will benefit by $39,714. The loss to currentgenerations is also quite sensitive to the duration of the new policy. If itis kept in place it will, for example, mean a $4,300 present value loss to

5 In these simulations we assume that total taxes are increased in 1991 by $21.7 billion, in1992 by $32.3 billion, in 1993 by $30.4 billion, in 1994 by $35.1 billion, and in 1995 by $35.1billion. The respective annual reductions in total transfer payments are $3.4, $5.9, $8.4,$11.4, and $13.4 billion. Finally, the respective annual reductions in total governmentconsumption are $15.8, $32.2, $46.1, $62.7, and $73.5 billion. These aggregate figures aswell as the composition of taxes and transfers across the different types of taxes andtransfers were obtained from Congressional documents describing the budget deal.


current age 35-year-old males, while if it is temporary, the loss to currentage 35-year-old males is only $900. Tables 5, 5a, 6, and 6a indicate thatthe current elderly will pay a considerable share of the total costs tocurrent generations of the new legislation, although this share differsdepending on the longevity of the policy.

In understanding the magnitude of the new budget deal, it may helpto consider the effects of the budget deal on the components of thegovernment's intertemporal budget constraint. In the simulation(s) inwhich the budget deal is permanent (temporary) the present value ofgovernment consumption falls by $1,262 trillion; in the case it is tempo-rary it falls by $176 billion. In the permanent simulation the presentvalue burden on existing generations rises by $825 billion; in the tempo-rary simulation it rises by $159 billion.

VII. SUMMARY

The ongoing debate about how to define the federal budget deficit issymptomatic of the need for a proper conceptual framework for describ-ing generational policy. Unfortunately, the budget deficit, no matterhow it is defined, cannot provide a proper assessment of generationalpolicy. As an alternative to economically arbitrary budget deficits, thispaper has provided a set of generational accounts indicating the netpresent value of payments of existing generations to the government.We have used these accounts and additional data concerning the govern-ment's intertemporal budget constraint to assess the magnitude of thefiscal burden being placed on future generations by current generationsand to consider the burden on future generations of a set of hypotheticalfiscal policies. The findings suggest that unless policy toward existinggenerations, including those who have just been born, is substantiallyaltered (for example, through a real adherence to the just enacted budgetdeal), future generations will face a roughly 20% larger net tax burdenover the course of their lifetimes than current newborns.

REFERENCES

Abel, Andrew, Douglas Bernheim, and Laurence J. Kotlikoff. (1991). "Does thePropensity to Consume Increase with Age?" mimeo.

Auerbach, Alan J. (1983). "Corporate Taxation in the United States." BrookingsPapers on Economic Activity.

Auerbach, Alan J. (1987). "The Tax Reform Act of 1986 and the Cost of Capital."journal of Economic Perspectives.

Auerbach, Alan J., and James Hines. (1987). "Anticipated Tax Changes and the


Timing of Investment." In Martin S. Feldstein, ed., The Effect of Taxation onCapital Accumulation. Chicago, IL: Chicago University Press.

Auerbach, Alan J., and Laurence J. Kotlikoff. (1987). Dynamic Fiscal Policy. Cam-bridge: Cambridge University Press.

Auerbach, Alan J., Robert Hagemann, Laurence J. Kotlikoff, and GiuseppeNicoletti. (1989). "The Economics of Aging Populations: The Case of FourOECD Economies." OECD Staff Papers.

Auerbach, Alan J., Jinyong Cai, and Laurence J. Kotlikoff. (1990). "U.S. Demo-graphics and Saving: Predictions of Three Saving Models." Carnegie-RochesterConference Series on Public Policy, in press.

Boskin, Michael J., Mark S. Robinson, and A. M. Huber. (1987). "GovernmentSaving, Capital Formation, and Wealth in the United States, 1947-85." NBERworking paper No. 2352, August.

77K? Economic Report of the President 1982. (1982). Washington, DC: U.S. Govern-ment Printing Office.

Eisner, Robert, and Paul J. Pieper. (1984). "A New View of the Federal Debt andBudget Deficits." American Economic Review 74(1), 11-29.

Feldstein, Martin S. (1974). "Social Security, Induced Retirement, and AggregateCapital Accumulation," Journal of Political Economy, 82(5), 905-26.

Hamilton, James D., and Marjorie A. Flavin. (1986). "On the Limitations ofGovernment Borrowing: A Framework for Empirical Testing." American Eco-nomic Review 76, 808-819.

Kotlikoff, Laurence J. (1984). "Taxation and Savings—A Neoclassical Perspec-tive." Journal of Economic Literature, 1576-1629.

Kotlikoff, Laurence J. (1988). "The Deficit Is Not a Meaningful Measure of FiscalPolicy." Science, 791-794.

Kotlikoff, Laurence J. (1989). "From Deficit Delusion to the Fiscal Balance Rule—Looking for a Sensible Way to Measure Fiscal Policy." NBER working paper,March.

Vaughan, Denton R. (1989). "Reflections on the Income Estimates from theInitial Panel of the Survey of Income and Program Participation (SIPP)." De-partment of Health and Human Services, Social Security Administration Of-fice of Policy Research and Statistics, September.

Waldo, Daniel R., Sally T. Sonnefeld, and David R. McKusick. (1989). "HealthExpenditures by Age Group, 1977 and 1987." Health Care Financing 10(4).

Wilcox, David W. (1989). "The Sustainability of Government Deficits: Implica-tions of the Present Value Borrowing Constraint." Journal of Money, Credit andBanking 21, 291-306.

U.S. Department of Commerce, Bureau of the Census. (1987). 1987 Census ofGovernments' Taxable Property Values. Washington, DC: U.S. Government Print-ing Office.

APPENDIX: THE ALLOCATION OFCAPITAL INCOME TAXESAs mentioned in the text, there are two related problems with usingcapital income taxes as measured to determine the burden of capitalincome taxation. First, existing assets may have excess future taxes capi-talized into their values; such taxes should not be assigned to new inves-


tors even if they occur in the future. On the other hand, the timing ofpayments of taxes from new investment may have a different patternthan would an income tax, meaning that the ratio of current annual taxpayments to income may not provide an accurate measure of the effec-tive marginal tax rate facing new investment.

In this appendix we derive the formula used to calculate the capital-ized value of taxes on existing capital and the correction needed totransform total capital income tax payments into an estimate of capitalincome tax payments on new investment. Our formula is based on theuser cost of capital approach (see, for example, Auerbach, 1983), whichassumes that the marginal product of capital equals the user cost ofcapital, C, where

C = (r+5)(l-7z)/(l-T) (Al)

where r is the investor's required after-tax return, 8 is the investment'seconomic rate of depreciation, r is the investor's marginal tax rate, and zis the present value of depreciation allowances. We wish to calculate twomeasures. The first, which we denote by Q, is the tax-based discount onold capital, which equals the difference between tax savings from depre-ciation allowances per unit of new capital and those available per unit ofexisting capital:

Q = T(Z-Z°) (A2)

where z° is the present value of depreciation allowances per unit of oldcapital.

Measured capital income tax payments are not based on the effectiverate of tax on new capital m, where

C - (r+8)m = r \ (A3)

Instead they are based on an average tax rate, a, where

r(C-b)a = (A4)

C-S K }

and b is the average current depreciation deduction per unit of totalcapital. Comparing (A3) and (A4) indicates that we must correct mea-sured taxes per unit of capital by subtracting from a(C-S) the term A,where


A = (a-m)(C-8) (A5)

To calculate the terms z° in (A2) and b in (A4) we must consider pastpatterns of investment. Assume investment grows at rate n. Then atdate 0 (the present) the nominal amount of capital purchased at date — swas /oe~("+17)s, where TT is the inflation rate. If this investment has beenwritten off at the constant geometric rate if/, the asset at date 0 has a basisof lQe~(n+'H)se~'ps and receives depreciation allowances of if/ times this basis.Thus total allowances on the existing capital stock K are

bK = if/ I I(£-^n+^e-i'sds= — / 0 (A6)oJ n + +ip

Since the capital stock equals the sum of depreciated net investment wehave

K= \ Ioe-"se-Ssds = ^ - L (A7)

o J n+8

Equations (A6) and (A7) imply

if/(n+8)

^ (A8)The present value of all depreciation allowances on old capital equals

the basis of each vintage multiplied by the present value of remainingdepreciation deductions on that vintage, or

K 0 J oJ

l0 if/ n + 8 n+8

z°K 0 J oJ

(A9)

r+ 7T+ if/ K(n + 7T+ if/) r+ TT+ if/ n + TT+ if/ n + TT+ if/

where 2 is the present value of depreciation allowances per unit of depre-ciated basis.

Substituting (A3), (A4), and (A8) into (A5) yields

(r+7r+ifj)(n+8)A = {r+8)rz - — TZ (A10)

n+TT+if/


Substituting (A9) into (A2) implies

n+8Q = rz-rz — — - (All)

n+rr+ij/

Expressions (A10) and (All) may be simplified if we make the realistic(under current tax law) assumption that z — z, thus,

A = {r+8)rz\ 1 - — (A12)v ; L (n+7r+if,)(r+ 8)\ v ;

a n d

/ n+8 \= 72 1 - - — — -

V n+ir+ty I/ n+8 \

Q = 72 1 - - — — - (A13)V n++ty I

We assume that 5=.O8 and n=.O3. These values are roughly consistentwith the average depreciation rates and past growth rates for equipmentand structures (see Auerbach and Hines, 1987). We further assume forpurposes of these calculations that r=.O4. For these values and for aninflation rate of 4% depreciation allowances [the right-hand side of(A14)] provide roughly the same present value as true economic depre-ciation [the left-hand side of (A14)].

8 d/= z (A14)r+8

When r=7r=.O4 and S=.O8, we have from (A14) that ^=.16. For ourcalculation of the actual value of z based on this value of if/ we assume7T=.O5 to maintain consistency with our other calculations. (Using TT=.O4

rather than .05 has no important impact on the results.) In addition, weassume that the tax rate T equals .32. This value is less than the statutoryrate of .34 with the difference reflecting the small difference betweencorporate and personal statutory rates. These assumptions lead to thevalues zl=.00111 and Q=. l l l . This value of Q is consistent with earlierdirect calculations based on tax provisions similar to those enacted in1986 (Auerbach and Hines, 1987). These fractions are multiplied by$5,488.8 billion, the value of depreciable assets held by taxable investorsin 1989 to arrive at the numbers cited in the text, viz., a $6.09 billionsubtraction from current total capital income taxes and a $609 billioncapitalized burden on old capital.

INoo

42s

< 8

go

5Q

Ia

•a 2§=3

01 0*CL, X

o jS

ital

au

o

01CD

0)

go

cise

X

w

<yE0)

g

enO>X

xes

en

X

&

Ol

c-w 01'-7 C

o.S

ooc5c5doooc)oooooooooo

OOOOC5OOOOOOOOOOOOOO

Oi-lT-HT-HrHrHrHOOOOOOOOOOOO

cid>d>d>d>d>d>d>d>d>did)d>c5(zid>d>cSd>

vo^couSÔLo'-ÔNioooiricoi-HCjNTiHCNidddNto^mvDKNvovoin' tmcs

CO CO CO O l ^^ CO -Q C J ^^ '' ^ C"|J vj H ^ 00 Ô ~ ^^

^^ ^H ^î J T ^ ~ ^ LO ^^ ^^ ^^ T"H c' ,3 ^ ^^ ^H ^*) ~} ^ 1sj CO ^^ LO Ô t^ vO vO Ô LO ?t CO C J

fs sj 00 CO ^^ ^^ LO ™ OJ ^^ ^^ t^ JN 00 t" LO Ô C^ Lf LO

CO CO «O LO O^ CO ^4^ -Q <O LO ^^ tj^ 00 ^^ CN| ?™H LO CO T"™ ^t* J> r*H kj O O^ j ^ 00 [""N LO ^^ Ô ^^ CO ^^ " ^ CO 0^ I CO

O)

T3O

inINoo

be

O

pa <s

X g

O

a.

K

ien

uQ<

Qen<

01 0>

ital

U

o>£

_go>

>w

on4>Xn3

- M

Cfl

X

u

a,

•J3

q ; ^ | i q q qOOOOT-JrHrHOOOOOOOOOOOO

OOr-irHOOOOOOOOOOOOOOOddddododoocJodddoodo

(N1

s

ID1

LD

1

R

ID ID1 1

LD O

1

00

1

oON

tions

4) 0»

oo

33pa i a

S88

OH ^

4>S

I

13 Q-O £

01 01a, xo <3

2 oi'u XX (0

orf

-eoU

o

cs

• 52

O N

•5

OJ

<

oooor\io6c\io\oooVO O Os ON CO

( N I—I I—I T-H

COOLNLOtNONtNOCOCO

OOOOOOOLNOOO^2 ^^ 3 ^ ^ ^ ^ ^ NO ON

LO (N ENON CN CN- * EN 00

C i c N ^ O c iCONXOvD

T f o o c oOONMKNCJ\(NOi-i O O ON

OOCOOOtNOOLOLOCNCO

O O L O N O

O O O O N O L O L O V O ^ D O N

O O f < f CO ( N r - I O N L O OO'O'O6O6'*CO(NTIHO6O

vovooK'f vonLO IN LO IN O • * • *H t VO O H

CO

^ rH tN! N I r^CN CO CO ' I

O N O N O N O N O N O N O N O N O N O NOOONOrHCNCO'«tLOVDLNO N O N O O O O O O O OrHrHCNCNCNCNCNCNCNCN

I:01

OH O ><

.% s

<!U xE -2

o g-^ O

c

CNLOCNONLOTfONONLO

O L O O N L O ' t O O O O O

OOOOOOOlNtNOOOOOOOOLOCO

ON O 00LO IN \Of O IN

LN 00 LN O CO NO NONO EN ON LO LO LO 00

rH THH VO rH

LNONOOrHCOO^ CO LO LO[N 00 00 00

OLOrHOOOvqCNrHONOCO^dcOCNrHCNrHLO

00 00 CO O LO CO ENON LO EN CN 00 LN rHCN 00 •* X NO CN fN

rHOCOOOONONCOOLOLOLOrH^OrHONONLNrHOOOTj<LO\OrHOOLOCOoctHtnvomMHiN

rHCNCNCNCNCNCNCN

OLOLONOLOtNONVDLO CN CO 00 O LO O^* rh O CM NO CO " *rH •rjt NO NO LO rH

OENONONLqENONlNOOrHONNOOLOrHOO

OCOLOONOOOOtNOO

T3 OH

8 6

w

01 01

o JS

.l£

— 01

.5 £ SOH O X

• rt Ol<J X

U x5

> S" Oi

coincMi-HCNinTfi—i

O N ^ O N I N O O O O

oqoqooasinCNid

oooooqooootNOO

Genei

AFDC

a

269.

286.

315.

CN NO

o mNO m

o oo o

CO tN

NO1—1

oo

in

430.

744.

ON tN

inCN

oo

I-H

NO

IN

3959

CN

869.

375.

oo

ON

5774

I-H

oo

I—1

6617

in

l-H TJH in NO IN tN IN

O 01rx ><o «

U.S

in o o co o NOCO I-H NO 00 CN CNI-H Tt in m m I-H

U S

O N odt in voi—i co m m ^ I-H

I-HI-HCNCNCNCMCMCM *S

CN co •* in 1u

i n CN NO O CO CN ON

m

ON

NO

•^ IN i-H ON 00 INNO in •* CM CM CM

NO 00 •*oo co I-Hin m I-H

o o oo o o

tN tN \£> I-H 00 tN I—I

O NO CN 00 I-HON CN IN NO mCO •>* IN i-H CM

i-H 00 00 IN

m CN in in IN•t1 o •** m m CMON in T I-H CO COco in NO IN IN IN

CO CO t Nin co I-H

CO CO CO CN CO I-H

ON ON 0 0 I-H<D oo oo oo Iin co NO NO inCN tN CN in ^

I-H

1844

ON

3810

CM

3565

IN

ON

2201

I-H

2292

I-H

2170

in NO 00

1971

1857

1921

oo oo

5198

5413

4828

4863

,_

CM

5064

o

NO

4517

o

1170

CO

1095

tN

350

ON

327

NO

oo

oo

tNI-H in I-H ON IN CN in' o in o co

" ON NO T-I

ON ON ON ON ON ON ON

I-H I-H CN CN CN CN CN

o o o o o o•<* m NO IN oo ON

-a ex

!§MH *J

CD

Gen

eiA

FDC

X

266.

292.

NO vO

399.

or-i 00 •*

in co CN

o od d

od

m

691.

CN

NO

IN

3674

.

NO

807.

od

rH

5359

.

o

348.

od

IN

6140

.

a Xo .2

l!

«§u .S

<! &u x1E -2

iU

rH IN -<t O O O

O ON I-H CN r—i T-H

O fN CO O O O(N NO fN •** 00 fNi—i co co T-H m IN

rH 00 IN NO

H NO CO tN ON tN

CO 00 fN tN NO 00IN TjJ tN O NO r-iin IN m t IN co00 IN in rJH rH INNO r H TJH CO O ON

CO IN CO ON CO CO

CM tN tN rH rH rH

o NO to in co oCO ON tN NO •<* OrH ON ON T~^ COin NO rH O CO

00 00 tN O

ON fN ON in m otN CO CO i n I rHrH CM CS| ' I

ON ON ON ON ON ON .

fN CN fN tN

Gen

eA

FDC

s13

2.

oo

95.

<*

rH OIN INtN CO

ON

toCO

oo

CO

o

m

641

co oo

CM

oo

CN

m

rH

3410

O O

O OON CO•* fNIN CO

o oo o

CO NO

4973

5698

CO ON NO

o JSPL,

2 2 MfX O X

•* m NO IN oo ON U

NO CO fN CO O

ON O O O

NO 00 CO rH ONCO tN "* NO INCO CN "^ 00 ON

•>* m NO co oIN in rH CO CO^ in NO NO NO

in CN NO oori r-i H O

IN Tf O CO rHCN O O •* COON m m 'T oo co tN ON ON

tN ON ON IN O

"* 00 IN ON inS. NO ON ON inON oo NO m NO

IN in co oo orH 00 00 ri O

CM in co co or-i O CO CM ONO ON -^ 00CO 00 ON CM-tf CO

NO in o in ooCO NO CN NO CNIN CN •<* *" rHin CM CN co INH (N| "* H HtN tN | |

ON ON ON ONON O rH tNON O O OrH fN tN CN

in NO IN oo ON

CD

Gen

AFD

C

X

OA

SDI

CO

IN

dCN

od

oo

1139

.

ON ONin NO

in d

NO CM

3164

.46

15.

oo oo

8247

.76

79.

ONCM

o

d

CO

5288

.

o

6818

fXo JS

01<2 c <"-•SCO)

rxo x5

SS oi'<-> x

< 2U xE 13

i

00 •* NO CO

C) O O OON d d d

co m m ON

in CM IN mrH IN 00 00in in m m

CN 0 ^ r-iCO O NO 00in NO IN coCM rH 00 00

co NO NO oqTji in -^ inCO tN 00 COIN in •* m

rH IN rH O

ON in d din co oo00 ON CM

d in CN drH IN NONO 00 CN

CN tN CO CO

NO m NO ONO CO rH HN

8 g

1w

U x

u

Is O\ NH O O

oqqo o o

'tqiNCN in 06

qoqin o o

00 " * I-H

o in coc o •«* • < * *in m m

co ON q06 o< 0\£> m00 <N

co (N qCN co o00 CN

O«HN H 0\CN m K

T3 DHO g2 *

oc00

CL.O ><

u.S™

w &

U XE 8

o .<a -~u

q qo o

q qo o

vr> oo\o m

in ixoo CNtx CNCN CO

CN q

T3 CL,

si

O 2

"S3 o;• J e m."S C oi

a, p x

. a o>U Xx «

U x

c*J 01

4! 6

u

oo

too

Ra©

< RH °* sW OP i >s,

g.

8

01 01a ><o J3

.•§6 8fx o x

c 3 . s "

U xE -2

u bo<

ootNenencMoocNOO

OOOOOOOINOOOOOOOOOO^NOON

in CN I NON CN CNTt I N oo

OOfNCOOOCNeOON'OvO

oooeotNCNiintnoqcNoooodinor-Hrnooeo

ON 00 CO CM 00 tN tNin ON CM ON o ON oo

CN| v£> 00 ON IN

OO^NH(N|it(N|NOIN rH 00 CN IN CN i no m ON o co ooi—i CN CN CO CN

CN ON oq ON in co coNO ON IN ON ON O I-HCN rH CN O IN CO O

eo in in m ••* oCN NO o >T i n

ON IN00 ON

ON ON ON ON ON ON ON ONOrHCNeo inNotNO O O O O O O OCNICNCNCNICNCNCNCN

T3 OH

IICD

U

u

01 01a, ><

1 §6%

§u 60<

%%&

ONOOCNOI-HOOOO

CN eo in in in in ON

OO^NNO rH CO rH rH

NO rH 00 • *en ^ CN rH

o o oo o o

OOOOOOOININooooooooineo

ON o oom IN NO•* VO N

NOCNtNONCNOOrHOOON

oi-HONNOIN oo IN ooIN IN CN ONN n oo oo

O O C N I N O O r H C N^O t**1". ^^ ^ c 4 ^^ 00 COcNONTfHineooNNOoorHrHCNCNCNrHrHrH

cNiNooininON in ON in i—i"^ ON ON en 00CN CN CN CN

O O N O O C N C N T - H C O

c>NbcNiNLneoeocoON CO NO O O NO inON CO IN 00 CN IN

CN CN CN CN

\OlfinNrirJH(KJrt

ON ON ON ON ON ON ON ON ONO O O N O r H C N C O ' t i n N OONONOOOOOOO1-Hr-icNCNCNeNCNCNCN

IIw

01 012 -2

™ d oi.tS C OiOH O X

3 M 2

•a 8X «

o a 5•2 ° x« <J «

p-J C -^

-w 01

2 5.

u ~

ONOCNCNCN^CNrHN O c o o o o N i n ^ ^ m

•73 CL,

<N Os O ON TJH ON O

oooooooNinOOOOOINCNO

NO CN COCN CN I-HT}H VO I N

rHrH- * C Oin HvD tN

IBJ

Gene

AFDC

2

n

ON CN CNNO NO in

oo

478

o

ON

477

o

476

NO NO

CO CN

oo

in

oo

o

121

©

o

CN

40.

CN

497

CNNOCN

oo

rH

in

•<*

806

oo

CN

3959

NO

o

ON

o

CNO CNON NO00 ON

O

o

ON

5774

o

O

o

rH

6617

CN

O C O C O - * T - I C O C O O

ONOONOCOCOOcN^NCin

OOCNCOC N C N

oo oo in in

c^coCN O NO OON I—i i n NO O

CN CN CN CN

ON CN ON CN O IN CO NONO N O O t N O N C N I s i r H

CN i n ON CN CN

•si

U X

4.. 01>-7 C

Os ON ON ON ON <_l

NO CN 00 ON a- a ~

CO i—i ON i—i ON O i n

CN NO O O O

CN CO i n CN 00 ON

NO NO I H ON 00 CN| rHCN O O I-H •<* i n CN

CN CN rH ON ON NO ON00 NO ON ON 00 NO CNCN 00 CN CN CO CN ONJ* CO ON rH CN CO NO

CN ^ CN CN NO

HlfjVOOSOHCN CO CO 00 d 00 00ON O ON ON CN »* CNNO i—i I-H ON NO "T ini-H CN CN i—I rH rH i—I

NO I-H CN rH in I-H ONO CN CN 00 CN ON O^ ^ 00 CN O ^I-H m in o INCN CN CN CN

CO ON 00 •* CN ON O00 CN in CN CN in C5O 00 rH ON in •<*<o co Tti oo NOCN CN CN rH

NO O in ON 00 NO OCN in CN 00 CN CN in

ON ON ON ON

I£ JtoON tN m ON ON o

I:

C o

U x

-o o x,3 23

c-M 01

60<

156

m m INCNNO

in

co

4

co INin co

CN OCO •*

NO oo

IN ON CO 00rH rH

4J

00 CO

ooCN

O

44

oo

NO CO

oo

o

oo

o

O O O N H No o d •<* o o

IN m •*NO CO r-Ico in NO

oo i n NO NO • * coLT! H rf IN rH dm CNI in m ON voco m NO tv oo o

vD H tsO O r-i

"re

Gen

e

U0<

53

n

OA

S1

49.

ON

409

CN

o

m cooo ^CN ONT^ \O

NO

<tf CNO CN

O

o39

5oo

997

oo

rH

3410

o76

7

oo

o

o

829

oo

CO NO

4973

5698

ON

5843

6369

6077

NO NO oo i n NOd \o H ts t\<N I-H 0 0 rH T *NO NO rH ON NO• * NO tN in

CN n * d com co in m "* OON o oo m co •*rH CM rH rH rH rH

Dv co I-H ON i n oCO NO <N r-1 iri 0NO ON oo i n ••*CO CO 0 0 NOCM CN r H

"* ON 00 ON NO OrH rH O ON CN O

CN <N t v 00 IN CO

ON ON ON ON ON ON

rH rH CN CN CN CN -C

O H > <o JS

I:

3 6 8o , o > <U . S 2

U XE5

^ 01

^ s

O CO CN ON ON

O CO O O

rH NO rH i n 00

I N doo •>*CN rH• ^ NO srH

L889

tN

L720

00 NO

oo

L438

o

o otN ON•<* inCN CO

CO oco NO in CN oCN •<* o -*CN C N NO

in o o in o

r t uS NO COCO CN I ON OON CO ' Th INON O ^T ON

^ I I

0> 01

o 2

9 <u.Ire3

l ieCX O X

U . S 2

U SE 3

$ 6 ZO X

Iu

CN IN CN ON

"tOOO

ON O O O

O NO CN CO

in IN CN NOCN o CN coON IN CN ON

in NO in

CO CN CN CONO i n NO rHi n NO I N ON

i n 00 CN CN

00 CN CN CNJ\D i n IN rHON CO i n NOin CO rH CN

00 •<* CN OO r-i ON OCN NO CONO in

NO in NO orH CN COin m

co in oo or-i O CO CN

00 O O rON ON O OrH rH CN CN

o o o oNO IN 00 ON

T3OOT .M l

a-g2en

3

CO

dCO

INCO

IN CNCN inCO

od

CO

od

J

58H aX -S

S3wP

i- tn01 01

o «

.-£ c oiDH O X

l l

K e1

o g-5 o

qqoodd

00 • * ro

mO

ONNCN

in

in "* **in CN INO T-l ^

ri ON T}H

ON co dCO IN INCN O H

" "*! °.ri vO d

>cqnON r i CNN O N O C DC N n N OI -^ oo

I I

•73 D-.

01

o

1

5cn<0

01X«

ONCO

IN

i n• « *

NO00 CNmCO

r i

m in

r i, _ ;

NONO

vOooIN

I s

q qd d

co oi3 NO

q qd d

CO r iI

}Hns01

> i

Oi00

<

ONooO N

s

ON

8}r i

oON

l<o

^:

a

T3O

>

0

ri-

d

o-

tam

ral

o>co>

r T

U0<

s5cn<O

cn0>

Li X

C bC.£?«01

tn

apit

alic

ome

axes

U.S **

<" cn

Exd

sta

xe

r1 tn

U X

j mH

C4 - 1 0 1o> 5Z x

9-5

a,

) H

Age

CO

dCO

qd

ON

r iNO

od

CO

226.

m

3

INONCNK

cn

1

INin

ON

1007

.

od

0.0

q*CO

1

ONooONri

oON

u

oo

©

if

5

5

3

u

c c o

|f it

^ "3

60

° '-6 "g '§$U . 5 CD

60 3, U

JS x

toU

01 U

0)

a) 60

| | |

ooON

| | | | |

^ ^ C O M

•sOONONOOt^LOO^DT—ICO^^COCN2i i i i i

I I I IrH ^t

| ON

ON vo N M in oo

I I I I '

O N O O T c i r i r i o o T o>\ O r I C O ^ ^ C O C N I 00

Co

•J3

mo 20 0 ON ( y d )

-t-» 0 0

1-LH

Koo

©

if

RO

5

fi

«•"

8X a

w +j a

8N

42sa

8

11

U

CO

<- c o

2 -2

.Sen

CO

60

2 SC a*

CNCNCNCNCNCNCNCNCNrH^H I I I I I < N

OCNinoOOOOOOCNCOCOvOONCNi-HtNONONi-l COCMCMCNCNCNCOCNCN | | | ' CN

OCN|iSoOOO

00 t O N I S H O

O (N 'j* N 00.ON

OCNCOCOvOONCNi-HlNONONi—I CO" *°" ' ~^ CN NO ^^ in ^ co CN i f~~*I H I I I I I

OrON^ÔOH tvO ^ LO CO I ^H

i i i i i

OflN^ÔOH COô ^* in ^ ^ co i in

I I I I I

ON OON CN

in O ON O ^ ON CO CN t™™* i™ CNvoo^f I inirnn^fD i INH H I I I I I < N

O ^H co Ô t-O C s t x ONO CN O t s CO O CO OCNCNCNCMCNCMCNCNCN

\O ^^ LO ^ *^ CO II I I I I

CNCN|CNCNCNCMCN|CNCNT-(rHLO ^^ LO ^ ^^ CO

i i i i i

oinoinomHHMfNi

oinoinoinomoinoinococo^îninvovotNtôooooN

OON

00o

g.rn O,^ LO ^ ^^ CO II I I I I ^

Co

•43BSIJ

CcuW5

oo

5

Hi X

5Z

2N

U

11i a «U

•a c

£- C O

J i s im V ^ CO

C 3.2 o

SI

a; .5

£ w 3

&« x

at u

3

u

o•43SS0)c

O

Cu

00

c0>00

00 00ro ^

I I I I I I

TH VO ^^ LO O1** CD t x \O O^ ^^ tNt0 0 VO "*^ T—4 ^H LO LO LO ^ ^ ^ ^ I

I I I I I I

i n n n ^ Î I I I I I

!>. 00 ON C?\ 00 CN m^c in in Î I I I I I

rH CN in \© m m rf iI I I I I I

drHvdHrtcor o vo vc vo i n • *

I I I I I I

f i n o n n Î I I I I I

inCN

i-H

m

i n

oinoinoinHHMfS

oON

"-D 0 0 CN

m o in

I-H

s

rH CNrH CN

1

in o

-53

58

-60

o

-57

in

-50 CN IN

T '

£ £

Fut

ure

tions

gene

ral

3

u

u

CO

o £

£ g OH

S £rH rHCD '-'

bo o 5boR

PQ ~

SI

S « a

I

'-O 'o -d

0> .5 CD

| | 3

QJ U

ItC ooO O\

•pj rH

2 S0) * r t

S bO

^ ' - ' ^ ' - ' --1 I I I I I I I ^

ONvONqino^inrotsoqHcoHHtnintNN^ iovovod^noNONiovdc^QOoo^nioooNinis INONOrslrsimCNrHOOOlTlCN I ^ N N VO ID rjt i O

o\vDt\qina\innN00HfOHrHfom(Nis^ oq

O\OCM(NC0(NrHO00U-) r s | I ^ N N N i n ^ I ON

^ N N N IT) ' tI I I I I I

rH Tt IN tv IN in ^I l l l l l l

00ON

^dcjsOO O00*«

I l l l l l l

l l l l l l

i n00

oON o»

u

"51-LH

GO

2Go>bO

generational accounts: a meaningful alternative to deficit accounting

Documents