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Is the Deficit under Control?A Generational Accounting Perspective on Fiscal Policy and Labour Market Trends in Spain

Holger Bonin (), Gemma Abio, Eduard Berenguer, Joan Gil () and Concepció Patxot ()

No 306, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: According to the 2001 Spanish budgetary previsions, the government deficit is about to disappear. We analyse this matter within a generational accounting framework. Accounting for the recent expansive phase of the economic cycle, we find that current fiscal policy is also intertemporally balanced provided that the favourable present employment situation lasts. However, public finances remain under the pressure of the demographic cycle. Therefore, to achieve fiscal sustainability, the surpluses predicted for the next decades need to be accumulated, in order to finance deficits appearing during the baby-boomers’ retirement. The improvement of employment has played an important role in this situation. We extend the standard generational accounting methodology incorporating tax and transfer age profiles by employment status. This permits us to analyse the possible intertemporal impact of several future employment developments. In particular, we assess the fiscal effects of an expected future increase in female labour force participation. We show that this trend does not necessarily improve the intertemporal government budget, as social insurance in Spain is not actuarially fair. Finally, we also assess the impact of a decline in unemployment to the natural rate of unemployment.

Keywords: fiscal policy; Spain; Generational accounting; labour market trends (search for similar items in EconPapers)
JEL-codes: E62 H55 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2001-06
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Published in: Investigaciones Economicas, 2003, 27 (2), 309-341

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Journal Article: Is the deficit under control? A generational accounting perspective on fiscal policy and labour market trends in Spain (2003) Downloads
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