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Fiscal Policy and Educational Attainment in the United States – A Generational Accounting Perspective

Xavier Chojnicki () and Frédéric Docquier ()

No 1040, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, we investigate the consequences of the rise in educational attainment on the US generational accounts. We build on the 1995 accounts of Gokhale et al. (1999) and disaggregate them per schooling level. We show that low skill newborns are characterized by a negative generational account (-15.4% of their lifetime labor income) whilst medium and high skill newborns have positive accounts (26.8 and 32.3% of their lifetime labor income). Compared to Gokhale et al., our baseline forecast is more optimistic. Nevertheless, the rise in educational attainment is not strong enough to restore the generational balance. The current fiscal policy generates a long run deficit. Balancing the budget requires increasing taxes (by about 1.2%) or reducing transfers (by about 2.7%). These results are robust to growth and discounting assumptions, to the treatment of education spending. They are sensitive to assumptions about the schooling level of future generations.

Keywords: fiscal policy; generational accounting; human capital (search for similar items in EconPapers)
JEL-codes: E62 H6 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-pbe
Date: 2004-03
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Published in: Economica, 2007, 47 (294), 329-350

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Journal Article: Fiscal Policy and Educational Attainment in the United States: A Generational Accounting Perspective (2007) Downloads
Working Paper: Fiscal Policy and Educational Attainment in the United States - A Generational Accounting Perspective (2004) Downloads
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