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Intergenerational policy and the measurement of tax incidence

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  • Juan Carlos Conesa
  • Carlos Garriga
Abstract
We evaluate the ability of generational accounting to assess the potential welfare implications of policy reforms. In an intergenerational context policy reforms usually have redistributive, efficiency, and general equilibrium implications. Our analysis shows that when the policy reform implies changes in economic efficiency, generational accounts can be misleading not only about the magnitude of welfare changes, but also about the identity of who wins and who losses. In contrast the generational accounts correctly identify welfare changes when the policy reform has only a pure intergenerational redistribution component. We illustrate and quantify this issue in the context of widely considered policy reforms (substitution of consumption for labor taxation, and the increase of retirement age) and in a more general context of optimal policy.

Suggested Citation

  • Juan Carlos Conesa & Carlos Garriga, 2013. "Intergenerational policy and the measurement of tax incidence," Working Papers 2013-016, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2013-016
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    References listed on IDEAS

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    1. Georges de Menil & Robert Fenge & Pierre Pestieau, 2008. "Pension Strategies in Europe and the United States," Post-Print halshs-00754865, HAL.
    2. Juan Carlos Conesa & Carlos Garriga, 2013. "Intertemporal discounting and policy selection," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 165-180.
    3. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
    4. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 2002. "Distributional Effects in a General Equilibrium Analysis of Social Security," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 327-370, National Bureau of Economic Research, Inc.
    5. Shinichi Nishiyama & Kent Smetters, 2007. "Does Social Security Privatization Produce Efficiency Gains?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1677-1719.
    6. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
    7. Carlos Garriga, 2019. "Optimal Fiscal Policy in Overlapping Generations Models," Public Finance Review, , vol. 47(1), pages 3-31, January.
    8. Juan C. Conesa & Carlos Garriga, 2008. "Optimal Fiscal Policy In The Design Of Social Security Reforms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 291-318, February.
    9. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    10. Luisa Fuster & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "Elimination of Social Security in a Dynastic Framework," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(1), pages 113-145.
    11. repec:fip:fedgsq:y:2006:i:oct4 is not listed on IDEAS
    12. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 55-110, National Bureau of Economic Research, Inc.
    13. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    14. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    15. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
    16. Ben S. Bernanke, 2006. "The coming demographic transition: will we treat future generations fairly?," Speech 234, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Christian vom Lehn & Eric Fisher & Aspen Gorry, 2018. "Male Labor Supply and Generational Fiscal Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 121-149, April.
    2. Heer, Burkhard & Polito, Vito & Wickens, Michael R., 2020. "Population aging, social security and fiscal limits," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    3. Cooley, Thomas F. & Henriksen, Espen & Nusbaum, Charlie, 2024. "Demographic obstacles to European growth," European Economic Review, Elsevier, vol. 169(C).
    4. Heer, Burkhard & Trede, Mark, 2023. "Age-specific entrepreneurship and PAYG: Public pensions in Germany," Journal of Macroeconomics, Elsevier, vol. 75(C).
    5. Juan Carlos Conesa & Carlos Garriga, 2013. "Intertemporal discounting and policy selection," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 165-180.
    6. Yantao Ling & Zhe Song & Yang Yu & Tangyang Jiang, 2021. "Dealing with an aging China—Delaying retirement or the second-child policy?," PLOS ONE, Public Library of Science, vol. 16(1), pages 1-20, January.

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    More about this item

    Keywords

    Generational accounts; optimal reforms; overlapping generations;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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