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Is the Deficit under Control?A Generational Accounting Perspective on Fiscal Policy and Labour Market Trends in Spain

Author

Listed:
  • Bonin, Holger

    (IHS - Institute for Advanced Studies, Vienna)

  • Abio, Gemma

    (affiliation not available)

  • Berenguer, Eduardo

    (University of Barcelona)

  • Gil, Joan

    (University of Barcelona)

  • Patxot, Concepció

    (University of Barcelona)

Abstract
According to the 2001 Spanish budgetary previsions, the government deficit is about to disappear. We analyse this matter within a generational accounting framework. Accounting for the recent expansive phase of the economic cycle, we find that current fiscal policy is also intertemporally balanced provided that the favourable present employment situation lasts. However, public finances remain under the pressure of the demographic cycle. Therefore, to achieve fiscal sustainability, the surpluses predicted for the next decades need to be accumulated, in order to finance deficits appearing during the baby-boomers’ retirement. The improvement of employment has played an important role in this situation. We extend the standard generational accounting methodology incorporating tax and transfer age profiles by employment status. This permits us to analyse the possible intertemporal impact of several future employment developments. In particular, we assess the fiscal effects of an expected future increase in female labour force participation. We show that this trend does not necessarily improve the intertemporal government budget, as social insurance in Spain is not actuarially fair. Finally, we also assess the impact of a decline in unemployment to the natural rate of unemployment.

Suggested Citation

  • Bonin, Holger & Abio, Gemma & Berenguer, Eduardo & Gil, Joan & Patxot, Concepció, 2001. "Is the Deficit under Control?A Generational Accounting Perspective on Fiscal Policy and Labour Market Trends in Spain," IZA Discussion Papers 306, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp306
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    References listed on IDEAS

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    1. Auerbach, Alan J. & Kotlikoff, Laurence J. & Leibfritz, Willi (ed.), 1999. "Generational Accounting around the World," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226032139, August.
    2. Holger Bonin & Joan Gil & Concepció Patxot, 2001. "Beyond the Toledo agreement: the intergenerational impact of the Spanish Pension Reform," Spanish Economic Review, Springer;Spanish Economic Association, vol. 3(2), pages 111-130.
    3. Robert Haveman, 1994. "Should Generational Accounts Replace Public Budgets and Deficits?," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 95-111, Winter.
    4. 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.
    5. Holger Bonin & Bernd Raffelhüschen & Jan Walliser, 2000. "Can Immigration Alleviate the Demographic Burden?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 1-21, September.
    6. repec:bla:econom:v:64:y:1997:i:256:p:605-26 is not listed on IDEAS
    7. Auerbach, Alan J., 1997. "Quantifying the Current U.S. Fiscal Imbalance," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(3), pages 387-398, September.
    8. Alan J. Auerbach & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "Generational Accounting around the World," NBER Books, National Bureau of Economic Research, Inc, number auer99-1.
    9. Alan J. Auerbach & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "Introduction to "Generational Accounting around the World"," NBER Chapters, in: Generational Accounting around the World, pages 1-8, National Bureau of Economic Research, Inc.
    10. repec:bla:scandj:v:94:y:1992:i:2:p:303-18 is not listed on IDEAS
    11. Raffelhuschen, B., 1999. "Generational Accounting in Europe," Norway; Department of Economics, University of Bergen 196, Department of Economics, University of Bergen.
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    Cited by:

    1. Concepció Patxot & Elisenda Renteria & Miguel Sanchez-Romero & Guadalupe Souto, 2011. "How intergenerational transfers finance the lifecycle deficit in Spain," Chapters, in: Ronald Lee & Andrew Mason (ed.), Population Aging and the Generational Economy, chapter 10, Edward Elgar Publishing.
    2. International Monetary Fund, 2005. "Spain: Selected Issues," IMF Staff Country Reports 2005/057, International Monetary Fund.
    3. Concepció Patxot & Elisenda Rentería & Miguel Romero & Guadalupe Souto, 2012. "Measuring the balance of government intervention on forward and backward family transfers using NTA estimates: the modified Lee arrows," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(3), pages 442-461, June.
    4. Holger Bonin & Concepció Patxot & Guadalupe Souto, 2014. "Cyclically‐Neutral Generational Accounting," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 117-137, June.
    5. Gemma Abio Roig & Joan Gil Trasfi & Concepcion Patxot Cardoner, 2005. "La Ley de Estabilidad Presupuestaria en el largo plazo: efecto del ciclo demografico," Working Papers in Economics 126, Universitat de Barcelona. Espai de Recerca en Economia.

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    More about this item

    Keywords

    fiscal policy; Spain; Generational accounting; labour market trends;
    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
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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