Róbert Iván Gál
The essence of generational accounting (Auerbach, A. J., Gokhale, J. és Kotlikoff, L. J. (1991): Generational accounts – a meaningful alternative to deficit financing. Cambridge, MA: NBER Working Papers, 3589) is to break down net taxes by cohorts, and to project these values, the current age-tax profile, into the future. Given a few additional assumptions on the growth of productivity and the discount rate, as well as population forecasts, the level of contribution levied on future generations by the present net tax profile projected into the future can be determined so as to meet the intertemporal budget constraint. The latter is simply a zero-sum constraint stating that someone (descendants in the absence of others) must defray possible overspending of the present. To put it more precisely: the present value of future net contributions of current and subsequent generations has to be equal to the present value of current government debt and future government expenditures.
The first generational accounts for Hungary were calculated by TARKI for the year 1996:
Gál R. I., Simonovits A., Szabó M. and Tarcali G. (2000): Generational accounting for Hungary (in Hungarian). Budapest: TÁRKI Társadalompolitikai Füzetek 22.
This calculation has been repeated for each year separately for the period between 1992 and 2001 for the Hungarian Ministry of Finance:
Gál, R.I., Törzsök, Á., Medgyesi, M. and Révész, T. (2005): Generational accounts in Hungary, 1992-2001. Ministry of Finance Research Papers 14. Budapest: Ministry of Finance.
Generational accounting can be applied to measure the effect of institutional reforms on sustainability of the welfare system. Such calculations are more complicated because reforms are frequently not immediate but describe an agenda for future changes. For this reason it makes sense to carry out generational accounting separately for pension systems in which legislation sets the intended steps of institutional reform in advance. We conducted a separate generational accounting exercise on the Hungarian pension system and its comprehensive reform in 1998:
Gál, R.I., Simonovits, A. and Tarcali, G. (2001): Generational accounting and Hungarian pension reform. Washington DC: The World Bank Social Protection Discussion Paper Series 0127.
Generational accounting is forward looking in that it takes net taxes into consideration only for the remaining lifetime. This facilitates assessments of longterm sustainability of the tax-transfers system but tells little about redistribution between generations. For that purpose we also need information on net taxes prior to the base year. In order to make such a calculation we filled up our net tax matrix with retrospective data. Our paper on intergenerational redistribution, winner and loser generations in the Hungarian pension system was published as:
Gál R.I. és Tarcali G. (2003): Pension reform and intergenerational redistribution in Hungary. The Economic Review (Keizai Kenkyuu, Tokyo, Hitotsubashi University), 54, 237-47.
We gratefully acknowledge the permission of Iwanami Shoten Publishers to upload the paper.