The name is absent

Moreover, accrual accounting measures are also (partially) backward looking because
they include only those future fiscal flows (taxes and transfers) that would result from
past triggering events. Given that governments are infinitely lived in principle, however,
it does not appear legitimate to ignore future obligation-triggering events - labor force
participation, earnings, tax-payments, etc. - if current policies are continued.²⁸ Indeed, if
accrued net obligations are positive but continuing current fiscal policies would generate
net future receipts, reporting accrued net obligations would indicate a large positive net
liability position even though current policies may be sustainable.

Generational Accounting

Generational accounting’s actuarial (as opposed to accrual) approach includes an
evaluation of future government obligations and resources triggered by future obligating
events. This method provides a comprehensive perspective for evaluating current fiscal
policy. However, its ex post perspective on the government intertemporal budget
constraint implies that concepts associated with generational accounting such as
“generational balance” involve subtle thought experiments that are difficult to
communicate. Those experiments involve hypothetical and nonimplementable policies -
of treating all future-born generations differently compared to the treatment of living
generations under existing fiscal policies. In addition, generational accounts are
calculated from the perspective of private individuals rather than of the government’s
financial constraint. That makes generational accounts difficult to integrate with existing
budget reports, which usually include short-term projected annual aggregate cash flows
(revenues, expenditures, and budget deficits) and total outstanding net debt.

Generational accounts are calculated and used as complementary indicators of fiscal
policy in several countries. They are reported in considerable detail in most generational
accounting studies - for individual age-sex cohorts (Auerbach et al., 1999). Generational
accounting also reports the generational lifetime fiscal burdens that would prevail under
policy adjustments for achieving a sustainable fiscal policy. Alternatively, it reports the
“menu of pain” - policy changes that would be required to restore sustainability.
However, the key information about the sustainability of current policies often becomes
obscured by the focus (and often confusion) associated with the multiplicity of numbers
included in most generational accounting reports.²⁹

Fiscal and Generational Imbalances

Fiscal Imbalance. The FI measure assumes continuation of current policy (including
scheduled future changes in current laws) throughout the future. Thus it involves no
complicated thought experiments or hypothetical future policies. It provides a summary
measure of total budget shortfalls - the sum of accrued shortfalls to date and prospective

might come to view those liabilities as contractual and immutable rather than simply legal—that is,
based on the laws prevailing when the payment comes due (which may be different in the future
relative to current laws). For example, see Federal Accounting Standards Advisory Board (2004).
Including the obligations from future triggering events would convert the accrued obligation measure
into the “closed-group unfunded obligation” measure. See Gokhale and Smetters (2003) for details.
For example, generational accounts are supposed to represent each cohort’s lifetime net fiscal burden
under current policies. However, when the meta-message is that current policies are not sustainable,
the value of focusing on the accounts as reported becomes diluted. Generational accounts have been
subject to several other criticisms in the fiscal policy literature. See Cutler (1993), Diamond (1996),
and Haveman (1994).

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