The name is absent

The liabilities created by some government programs may already be evaluated under
accrual accounting - for example, the budget costs of loans and loan guarantees,
insurance and underwriting costs, and so on. Several developed countries have adopted
accrual accounting for their government budgets although only a couple of them have
adopted such accounting comprehensively (New Zealand and Sweden).¹⁷ Accrual
accounting could be broadly applied to public pension and other programs that imply
future government net payment obligations but are excluded from traditional debt and
deficit measures.

Generational Accounting

Generational accounting reorganizes government budget information and implements
actuarial estimates of the lifetime fiscal treatment of current and future generations
(Auerbach et al., 1991, 1994). Each generation’s resources include those it earns, inherits,
and receives from the government as transfer payments net of taxes. Generational
accounting calculates the last of these three elements on a prospective basis for each
living generation. It also calculates the generational account for future generations based
on the government’s overall budget constraint - which specifies that the government must
pay for all the public goods and services it provides. As such, generational accounting
helps to assess the government’s net financial commitments to current generations under
current fiscal policies and, by implication, the net fiscal burden those policies would place
on future generations.¹⁸

Generational accounting employs an ex post perspective in analyzing the long-term
sustainability of current fiscal policy. Allowing PV_Pc to represent the present value of
total government purchases of future public goods under current policies (subscripted by
c), PV_Lc to represent the total present value of prospective lifetime net tax payments (tax
payments minus transfer receipts) by living generations under current policies, PV_Fh to
represent the total lifetime net taxes of future-born generations under a hypothetical
policy (subscripted by h) for achieving budget balance, and NWc to represent the
government’s current financial net wealth, the government’s ex post intertemporal budget
constraint could be specified as

PV_Pc ≡ NWc + PV_Lc + PV_Fh.                                      (3.1)

Equation (3.1) says that making future net payments to current generations under current
policies and assuming that the government’s intertemporal budget constraint is balanced -
as it must be ex post - reveals, by construction, the hypothetical net payments required for
future generations. Note that the objective of this exercise is to discover the total

For example, New Zealand applies accrual accounting to its budget process and fiscal management,
adhering to the standard principles of generally accepted accounting practice (Richardson, 1996);
Canadian provincial governments shifted from cash to accrual accounting methods during the 1980s
(Hillier, 1996); Germany’s Lander have instituted pilot programs to explore new budget accounting
conventions including accrual based budgeting (Lüder, 2002); Sweden has introduced accrual
accounting and reporting without extending the same to its appropriations process (Swedish National
Financial Authority, 2001); the United Kingdom adopts accrual accounting for government agencies
and is extending such accounting to broader government operations in stages (International
Federation of Accountants, 1995). Recent changes introduced by the Government Accounting
Standards Board (GASB) require state governments in the United States to report “other post-
employment benefits” (which include health care benefits) under accrual accounting.

Ricardian motives that effectively extend the time horizon beyond one’s own lifetime are found to be
empirically inoperative—at least in the case of the United States.

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