Working Paper

Intergenerational policy and the measurement of tax incidence

Abstract: We evaluate the ability of generational accounting to assess the potential welfare implications of policy reforms. In an intergenerational context policy reforms usually have redistributive, efficiency, and general equilibrium implications. Our analysis shows that when the policy reform implies changes in economic efficiency, generational accounts can be misleading not only about the magnitude of welfare changes, but also about the identity of who wins and who losses. In contrast the generational accounts correctly identify welfare changes when the policy reform has only a pure intergenerational redistribution component. We illustrate and quantify this issue in the context of widely considered policy reforms (substitution of consumption for labor taxation, and the increase of retirement age) and in a more general context of optimal policy.

Keywords: Generational accounts; optimal reforms; overlapping generations;

JEL Classification: E62; H21;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2015-10-16

Number: 2013-016

Pages: 33 pages