Fiscal Sustainability and Generational Burden Sharing in Denmark

Svend E. Hougaard Jensen, Ulrik Nødgaard and Lars Haagen Pedersen
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Svend E. Hougaard Jensen: Centre for Economic and Business Research and EPRU
Ulrik Nødgaard: Danish Ministry of Economic Affairs
Lars Haagen Pedersen: Danish Rational Economic Agents Model, DREAM, http://www.dreammodel.dk/

No 200401, DREAM Working Paper Series from Danish Rational Economic Agents Model, DREAM

Abstract: Based on generational accounts and a simple welfare calculus, this paper studies two alternative scenarios of sustainable fiscal policy. A strategy of tax smoothing is found to successfully distribute the financial burden associated with population ageing across generations, but this happens at the cost of a sharp increase in public debt along the transition path. This can be avoided if a strategy of debt smoothing is followed, but this shifts the financial burden onto current generations. A comparison based on a social welfare function indicates a marginal superiority of tax smoothing.

JEL-codes: E62 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004-03
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http://www.dreammodel.dk/pdf/W200101.pdf First version, 2004 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:dra:wpaper:200401

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