Assessing fiscal sustainability and the
consequences of reforms*
Torben M. Andersen Lars Haagen Pedersen
University of Aarhus Welfare Commission
CEPR, CESifo and EPRU
January 24th, 2006
Abstract
The paper evaluates fiscal sustainability by use of an explicit intertem-
poral (OLG) model. Sustainability problems are measured in terms of the
needed tax changes which either on a period-by-period basis balance the
budget or on a permanent basis ensure that the intertemporal budget
constraint is fulfilled. The pros and cons of these approaches to assessing
fiscal sustainability are discussed. In an application for Denmark the two
metrics for the sustainability problem are calculated and the implications
for the design and evaluation of policy reforms are discussed.
* Comments and suggestion by the discussant D. Costello and participants at the workshop
"The Budgetary Implications of Structural Reforms" are gratefully acknowledged.
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