show the extent to which the general government is obligated to cover future financial
shortfalls in dedicated revenues compared to benefit payments under current fiscal
policies. In such cases, GI calculated using just dedicated taxes would indicate the extent
to which past and living generations’ net benefits are responsible for creating general
government obligations for financing the program.33
GI calculations provide information that is complementary to FI. The FI measure tells us
how much additional resources must be raised to restore a sustainable fiscal policy. But
FI cannot indicate which among the myriad ways of raising the necessary resources might
be preferable. However, because GI provides information about how a given policy
would change the net benefits of living and future generations, it can help in selecting
from alternative policies.
Essentially, GI would inform policymakers about the trade-offs involved in raising
resources from current versus future generations for achieving fiscal sustainability. For
example, suppose FI = €2,000 billion and GI = €1,600 billion. This implies that past and
living generations account for €1,600 of the total FI of €2,000, and future generations
account for €400 billion.34 Policymakers could choose to enact tax and benefit changes
that reduce GI to €600 billion and reduce future generations’ contribution to FI to - €600
billion. Such a policy would reduce FI = GI + (FI - GI) to zero. Or policymakers could
adopt an alternative combination of taxes and benefits that imposed a larger additional
burden on living generations and a smaller additional burden on future generations - for
example, by reducing GI to €400 billion and (FI - GI) to -€400 billion.
Hence, adopting the combination of FI and GI as indicators of the overall financial
condition and generational stance, respectively, of current fiscal policies would provide a
powerful tool for evaluating the available policy alternatives based on their impact on
today’s versus future generations.
3.4 General Considerations of Fiscal and Generational Imbalance Measures
for EU Countries
Adoption of measures such as FI and GI need not imply that those amounts are
immutable liabilities of the government.35 Instead, they should be viewed as policy
guideposts - designed to help in implementing appropriate changes to future fiscal
33
34
35
Alternatively, both FI and GI could be calculated by allocating both dedicated and general taxes
according to the generations that pay those taxes. This calculation would reveal the part of (zero-
valued) FI that past and living generations contribute and the part future generations would
contribute under current policies. Note that even if FI = 0, by definition because of funding from of
general revenues, GI (and FI - GI) need not also equal zero.
Note that if FI < GI, current policies would award living generations net benefits that exceed the total
fiscal imbalance, implying that future generations would pay taxes on net.
Concern that the public would view the adoption of such measures as recognition that they stand on a
par with outstanding government debt - as immutable government liabilities - appears to be a chief
reason cited by those opposing their adoption.
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