Restoring Generational Balance in U.S. Fiscal Policy: What Will It Take?

Generational accounting is a relatively new method of reorganizing the government's budget data to understand how the burden of paying for government spending on goods and services is distributed among living and future generations.' To study this distribution, generational accounting estimates lifetime net tax rates facing different generations under current policies.' For a given generation, the lifetime net tax rate is its per capita lifetime net tax burden as a share of the present value of its per capita lifetime labor income. The lifetime net tax burden, in turn, is the present value of per capita taxes net of transfers that members of a generation pay over their lifetimes, evaluated as of their year of birth. For generations currently alive, the lifetime net tax burden includes net taxes they Alan J. Auerbach is a professor of economics at the University of California, Berkeley, and an associate of the National Bureau of Economic Research; Jagadeesh Gokhale is an economic advisor at the Federal Reserve Bank of Cleveland; and Laurence J. Kotlikoff is a professor of economics at Boston University and an associate of the National Bureau of Economic Research. The authors thank the Off ice of Management and Budget for providing critical data on FYI996 budget projections and the Social Security Administration for providing population projections. They also thank Robert Anderson, Darrel Cohen, Robert Kilpatrick, and Patrick Locke for heloful comments.