There are many studies concerned with how various generations subsidize each other, usually assuming current laws hold for all future generations. Do any government agencies (like CBO, the Treasury, etc.) incorporate generational accounting or other analyses of inter-generational equity into their regular reports? If not, do non-government entities that/have government entities ever released one-off reports of that nature?

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    It would be helpful if you could provide a few examples of the "many studies" you have in mind. – Brian Z Jun 15 at 14:16
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    Or even define what you mean by "inter-generational equity". – jamesqf Jun 15 at 16:42
  • Fiscal policy can be summarized as "give the olds all of the money from the not olds" so... no, because the policy goals are not "equity"? – Joe Jun 15 at 17:23
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    @Joe - "The olds" sounds disparaging to me. Perhaps "the elderly" or even "current generations" is more accurate? – Obie 2.0 Jun 15 at 17:27

Does the US account for inter-generational equity/imbalances when producing fiscal policy?

Bottom-line. No.

A central figure in promoting inter-generational accounting is Laurence J. Kotlikoff. The website, The Intergenerational Financial Obligations Reform Act, is a letter by Kotlikoff urging passage of the INFORM Act, which "requires the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap accounting and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major proposed changes in fiscal legislation."

Congressional activity

The INFORM Act was introduced the House in the 113th Congress, 08/01/2013, but died in committee.

Kotlikoff testified before the Senate Budget Committee, February 25, 2015 (see below). No further action was taken.

Earlier activity/reports

The issue was raised in a Staff Paper Prepared for the President's Commission to Study Capital Budgeting, April 21, 1998, on Generational Accounting.

CBO published a careful, extensive report on generational accounts, Who Pays and When?, over two years ago. After evaluating its methods, contributions, and limitations, CBO concluded that "despite the valuable insights generational accounts afford, they should not become part of the regular budget outlook. They lie in the realm of analysis, not accounting. Therefore, CBO believes that the accounts should remain as a tool to analyze policy from a conceptual perspective, rather than serve as an official statement."

An IMF Working Paper, An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How? was published April 2011.

Our findings show that the U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates. Using the same discount rate (3 percent) used by the Trustees of the Social Security Administration (2009) in their own Social Security-specific fiscal gap analysis and by CBO (2010e), and the infinite horizon definition, the U.S. fiscal gap is over 15 percent of the present discounted value of U.S. GDP under our baseline scenario. This implies that closing the fiscal gap requires a permanent annual fiscal adjustment equal to over 15 percent of U.S. GDP. In other words, fiscal revenues and spending would need to change so that the primary balance predicted under that scenario improves by over 15 percentage points of U.S. GDP every year into the indefinite future starting next year. The main drivers of the fiscal gap are low revenues from revenue constraining laws (like the once enacting tax cuts and AMT indexation); and rising healthcare costs that under current law will boost mandatory spending to above 18 percent of GDP by 2050. The gap remains large even excluding the adverse fiscal effects from the crisis. Using a more optimistic scenario where all tax cuts under current law are repealed, the Alternative Minimum Tax (AMT) is delinked from inflation, and all future governments succeed at permanently capping healthcare spending growth in the vicinity of nominal income growth, the fiscal gap drops to 4 percent of the present discounted value of GDP—per se stressing the importance of rapid fiscal action on these measures. The fiscal gap under a finite horizon definition, or a larger discount factor, is smaller under both the baseline and optimistic scenarios but remains sizeable.

America’s Fiscal Insolvency and Its Generational Consequences, Testimony to the Senate Budget Committee, February 25, 2015, Laurence J. Kotlikoff, Professor of Economics, Boston University.

The Fiscal Gap

Economic theory is unequivocal in telling us what not to measure when it comes to fiscal sustainability and generational policy. It’s also crystal clear in telling us what to measure, namely the infinite-horizon fiscal gap. The infinite-horizon fiscal gap tells us whether the government has, over time, enough receipts to cover its projected spending. It equals the present value of all projected future expenditures less the present value of all projected future receipts.

The infinite-horizon fiscal gap has five important properties.

First, it puts everything on the books. All expenditures, regardless of whether they are called debt service, transfer payments, or discretionary spending are included in forming the present value of future outlays. It also puts all receipts on the books, including income the government receives on its real and financial assets.

Second, the infinite-horizon fiscal gap takes on the same value regardless of what internally consistent labeling convention is used to characterize fiscal outlays and receipts. In contrast, any finite-horizon fiscal gap, such as the 75-year fiscal gaps calculated for the Social Security and Medicare programs, are, like the federal debt, creatures of nomenclature. I.e., they can be set to any value one wants simply by choosing the right fiscal labels.

Third, a positive fiscal gap means the government is attempting to spend, over time, more than it can afford. Doing so violates what economists call the government’s intertemporal budget constraint. Hence, a positive fiscal gap is a direct measure of the unsustainability of current fiscal policy.

Fourth, eliminating the infinite-horizon fiscal gap is a zero-sum game across generations. Hence, the fiscal gap tells us the fiscal burden that will be imposed on today’s and tomorrow’s children if current adults don’t pay more to or receive less from the government. Understanding the fiscal burdens our kids could face from the fiscal gap is called generational accounting.

Fifth, the machinery of fiscal gap accounting tells us the size of the adjustment needed to balance the government’s intertemporal budget constraint and how the magnitude of the requisite adjustments depend on when the adjustment begins.

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