Some researchers argue that the fiscal position is unsustainable if future generations are left to make a larger net contribution to the government’s finances than today’s generation. Generational accounts such as those produced by the National Institute of Economic and Social Research (NIESR) consider intergenerational equity. This box analysed this as a measure of assessing fiscal sustainability.
This box is based on Generational Accounts for the United Kingdom, NIESR and First Estimates of the UK National Transfer Accounts, McCarthy and Sefton data from March 2011 and April 2011 respectively.
Solvency is not the only criterion that can be used in assessing fiscal sustainability. Some researchers view it through the lens of intergenerational equity, arguing that a fiscal position is unsustainable if future generations are being left to make a larger net contribution to the government’s finances than today’s generation. This may be the case even if the inter-temporal budget gap is equal to zero.
This concern can be addressed using ’generational accounts’, such as those produced for the UK by the National Institute of Economic and Social Research (NIESR), supported by the ONS.a
These show the net discounted life-time contributions that people are expected to make to the public finances as a function of their age. If the net contribution for future generations is larger than that of current newborns, it is possible to calculate an ‘intergenerational budget gap’ – the tax or spending change necessary for this no longer to be the case.
There are additional flows between generations that do not pass through the public sector, but instead move within the family or through capital markets. National Transfer Accounts attempt to capture these wider flows and the relative importance of the intermediaries (public sector, family or markets), therefore providing a rounder view of the savings and consumption patterns of particular generations.
A snapshot National Transfer Account for the UK is now available for 2007, on an internationally comparable basis.b Over an extended period, as the time series is built up, it will also be possible to track the extent to which consumption matches savings for particular cohorts over their lifetime.