Why Generational Accounting?

Transcription

1 Cocept ad Methodology of Geeatioal Accouts This ote summaies Geeatioal Accouts: A Meaigful Alteative to Deficit Accoutig, by Auebach, Ala J., Jagadeesh Gokhale, Lauece J. Kotlikoff, i Tax Policy ad the Ecoomy 5, 99, NBER Why Geeatioal Accoutig? The geeatioal accoutig epesets a alteative to usig the fiscal deficit to gauge itegeeatioal policy. - The measued deficit eed bea o elatioship to the udelyig itegeeatioal stace of fiscal policy No cosesus as to how to measue the deficit Scope of budget: iclude cuet social secuity suplus, the full value of S&L bail out? coce about adjustmets fo ufuded govemet etiemet liabilities, iflatio, gowth, ad govemet acquisitio ad sale of assets 2

2 What cocept is the deficit supposed to measue? - The deficit is elated with the itegeeatioal edistibutio of welfae. - But, fom the theoetical pespective, the deficit is a abitay accoutig costuct whose value has o ecessay elatio to the questio of geeatioal bude. - Examples labelig social secuity taxes as taxes o loa to govemet? labelig social secuity beefits as tasfe o as epaymet of loas? Diffeet labelig chages the deficit level but does ot chage the lifetime budget costaits of ecoomic agets. 2 Pay-as-you-go fiacig of US social secuity system Substatial itegeeatioal edistibutio but ca label as o deficit. 3 Koea public pesio system lage suplus at peset but, too geeous beefit pomised compaed with cotibutio will shift lage bude to futue geeatios. 3 What is a appopiate measue cosistet to the itegeeatioal edistibutio? - Geeatioal Accouts (GA GA fo oe geeatio is et paymet to govemet fo the emaiig lifetime, which is the peset value of tax paymet tasfe fom govemet. - Compehesive i that this coside all eceipts ad paymets collected fom o paid to all the levels of govemets. - Ivaiat to chages i accoutig labels. 4

3 Geeatioal Accouts (GA Peset value of et tax paymet of epesetative idividual of geeatios fo emaiig lifetime - Net tax: tax paymet tasfe icome Geeatioal accouts stats with the followig govemet s itetempoal budget costait. D s N t, ts s N t, t s W g t s t ( N t,s : PV of et tax fo the emaiig lifetime of the cohot bo at s, evaluated as of t G: govemet cosumptio (govemet cosumptio hee icludes the govemet puchase of duable goods as well as oduable goods W: govemet et wealth G s s j j 5 Zeo sum featue of govemet s itetempoal budget costait. - Some geeatio has to pay fo ay beefit to aothe geeatio. What ae the geeatios? - Males ad females by specific yeas of age. A set of geeatioal accouts is a set of et paymet of each geeatio ad the et paymet of each geeatio is defied as: N t, k k D T P s, k s, k s max( t, k j t : the pojected aveage of et paymet to govemet P s,k : the umbe of suvivig membes of the cohot T s, k s j (2 6

4 Computatio of GA Divide cuet geeatios by age. Teat futue geeatios as oe geeatio. i.e. we assume that each successive futue geeatio s et paymet is the same up to a adjustmet fo eal poductivity gowth. Compute et paymet of cuet geeatios ude cuet fiscal policies The total fiscal bude of futue geeatios is detemied as a esidual, oce the et paymet of cuet geeatios, govemet cosumptio, ad govemet et wealth ae detemied (see equatio (. This implies that Fiscal bude of log-tem budgetay imbalace is bo by futue geeatios. 7 Assessig itegeeatioal stace of fiscal policy Idices fo fiscal sustaiability Geeatioal Imbalace (GI (et paymet of futue geeatios/et paymet of age - If GI >, cuet fiscal policies ae ot sustaiable. i.e. i ode to attai log-tem fiscal balace, et tax bude has to be adjusted sometime i the futue. Requied tax (ad tasfe adjustmet fo log-tem budgetay balace Adjust tax bude (ad tasfe of cohots, alive i a specific yea ad theeafte, popotioally util the PV of tax eveue of the futue matches that of govemet expeditue icludig tasfe paymet ad govemet cosumptio. 8

5 How do the et paymet ete pivate budget costaits? Lifetime Budget Costait of each geeatio k D s k D s P ( C k k s k t k k s k s, I s, P, W, E s, P, s t j t j s t j t j N t, k (3 C s, k I s, k E s, k P W t, k : cosumptio (aveage : pivate et itegeeatioal tasfes (aveage : Labo Eaigs (aveage : Net wealth The PV of the cohot s pojected cosumptio plus its et itegeeatioal tasfes equals esouces icludig et wealth, huma wealth, et of et paymet to govemet. 9 Compaiso of GA with Deficit The effect of equal ad simultaeous eductio i cotibutios ad beefit paymets. - Usig GA: No diffeece i the budget costait betwee labelig tax ad tasfes ad pivate savig ad etu of piciple ad iteest et of old age tax. - Deficit: Labelig tax ad tasfes: o chage i deficit Labelig pivate savig ad etu et of old age tax: - eductio i deficit though icease i old age tax.

6 Computig et paymets, othe compoets of govemet ad each geeatio s budget costaits A. Data Souces fo calculatig Net Paymets Requies pojectios of et paymets, populatio pojectio ad time path of iteest ate. (see equatio (2 Populatio Pojectio: Use pojectio by Social Secuity Admiistatio ad exted the pojectio up to the yea 2. SIPP data povides data fo estimatig age-sex pofiles fo most of eceipts ad paymets, except fo Medicae ad Medicaid. Use Waldo, Soefeld ad McKusick s (989 calculatios of aveage Medicae expeditue by age. Assume that age pofile of Medicaid is the same as that of Medicae. B. Detemiig Net Paymets Compute the age-sex pofile of eceipts ad paymets usig data fom SIPP ad othe souces. - Age Pofile (R j m, R j f shows elative level compaed with the level fo 4-yea-old males (h 4,i,t m Give these age-sex pofiles, detemie iitial yea (99 aveage values fo each age-sex cohot, by bechmakig agaist aggegate totals (H it epoted NIPA s aggegate values of govemet eceipts ad tasfes. i.e. solve the equatio (4 fo h 4,i,t m give R j m,r j f, H it. H it h m 4, i, t j D m m f f ( R j, Pt t j R j Pt t j i,, i, (4 2

7 Assume that the age ad sex-specific aveage values of eceipts ad paymets i futue yeas equal those calculated fo 99 adjusted fo a assumed gowth ate. i.e. value fo age i at td is (g D value fo age i at t g : labo poductivity gowth ate. Sum ove to get et paymet at each yea Compute the peset value of the et paymet fo the emaiig lifetime. 3 C. Teatmet of Labo Icome Tax Aggegate value of labo icome tax is 8.4% of total fedeal, state, ad local icome taxes, whee 8.4% of labo s shae of et atioal poduct. Assumed that labo s shae of popietoship of et atioal icome as well as its shae of idiect tax paymets equals its shae of et atioal poduct. D. Teatmet of Cotibutios fo Social Isuace 4

8 E. Teatmet of Capital Icome Tax Requies special teatmet fo two elated easos: taxes o capital icome may be capitalied ito the value of existig (old assets. 2 time patte of icome ad tax paymets may diffe. Capitaliatio esults fom tax icetives povided to ew ivestmet. A simple abitage agumet idicates that the exta tax bude o the old assets should be capitalied o these assets values, eflectig thei less favoed teatmet Pesece of acceleated depeciatio allowaces udeestimates log-u tax bude o ew ivestmet, if the tax bude is evaluated with the iitial tax paymets fom ew ivestmet. 5 Adjustmet fo the capitaliatio: The capitalied value should be attibuted to the iitial asset owe athe tha futue geeatios. i.e. The coectio to actual tax paymets should esults i a eo tax bude o the icome fom ew ivestmet. Coectio stats with the followig the fomula fo use cost of capital. ( δ ( τ C τ (A : the ivesto s equied afte-tax etu δ: ecoomic ate of depeciatio : PV of depeciatio allowace 6

9 Two measues eed to be assessed: tax-based discout o old capital (Q 2 diffeece betwee the magial effective tax ate o ew capital ad aveage capital icome tax ate ( Q τ ( C ( δ m C δ τ (C b α C δ ( α m( C δ (A2 (A3 (magial effective tax ate o ew capital (A4 (aveage effective tax ate o ew capital (A5 is depeciatio allowace fo old capital 7 bk I ( s s e e ds I (A6 (total depeciatio allowace o the existig capital assumptios: : ivestmet gowth ate : iflatio ate ψ : costat geometic witte-off ate (A7 s δs K I e e ds I δ (capital stock equals the sum of depeciated et ivestmet ( δ b 8

10 9 (A9 : PV of depeciatio allowaces pe uit of depeciated basis (PV of all depeciatio allowace o old capital equals the basis of each vitage multiplied by the PV of emaiig depeciatio deducitos o that vitage Solve fo Q ad : (A (A δ δ ν ν K I dvds e e e e I K s s ˆ ( ( ( ẑ ˆ ( ( τ τ δ δ τ τ Q ˆ 2 Assumig, (A2 (A3 (A4 put.4, δ.8, ψ.6, τ.32, Q., Δ. ˆ ( ( ( ( ( δ δ τ δ δ τ Q ( dv e e v v

11 Coectio Pocess: Estimate Q ad Δ 2 Coect estimate of futue capital icome taxes to accout fo thei iclusio of taxes o old capital ad geeatioal timig of capital icome taxes 3 Allocate total 989 taxes o ew capital by age ad sex 4 poject futue capital icome taxes by age ad sex 5 allocate to 989 owes of capital as a oe time tax paymet the989 capitalied value of the excess taxatio of olde capital Aggegate capital icome tax eveue: 9.6% (capital shae of et atioal poduct of total fedeal, state, ad local icome taxes, plus fedeal, state, ad local copoate taxes (excludig the pofiles of the U.S. Fedeal Reseve System, plus estate taxes. Aggegate value of Capital: 5,488.8 tillio dollas Noesidetial equipmet plus stuctues pus o-owe occupied housig owed by taxable ivestos (see Flow of Fud. Use SIPP pofiles. 2 F. Icludig PV of Govemet Seigoage The govemet collect equal to the eal value of ew moey pited I holdig this moey, households fogo the omial ate of etu available o othe assets. Attibute the bude of the acquisitio of moey balaces as a paymet to the govemet ad the dispositio of moey balaces as a tasfe fom the govemet. This has the effect of imputig a cost equal to the omial iteest ate o the holdig moey balaces ad also attibutes to all cuet ad futue geeatios take togethe a total fiscal bude equal to the PV of govemet eceipt fom pitig moey. 22

12 F. Icludig Excise Taxes Iclude state ad local excise taxes ad popety taxes assessed o busiess. Use CES data fo estimatio of age-sex pofile. F. Icludig Residetial Popety Taxes Teat popety taxes as excise taxes o home oweship ad allocate these taxes by age ad sex usig a age-pofile of elative house values. Use SIPP data. 23 I. Teatmet of Social Secuity ad Othe Govemet Tasfes Divide total govemet tasfe paymets excludig fedeal, state, ad local civil sevice, aiload etiemet, ad veteas ito 6 categoies: OASDI (icludig Fedeal Supplemetay Secuity Icome; HI (Medicae; AFDC; Geeal Welfae (icludig Medicae; UI; ad Food Stamp (icludig WIC. Use SIPP data. The absolute aveage values ae assumed to equal thei espective 989 values adjusted fo gowth, except fo social secuity. Make a ough adjustmets fo the impact fo the 983 Social Secuity Amedmets o futue beefits of the baby boom ad subsequet geeatios: 2-yea delay of etitlemet age 2 subjectig a iceasig shae of social secuity beefits to fedeal icome taxatio. 24

13 I. Calculatig PV of Govemet Cosumptio Decompose total 99 govemet cosumptio expeditue ito: ( expeditue o those age -24 (g y,s, 25-64, (g m,s ad 65 (g o,s ; ad (2 o-age-specific expeditues (g s. GS g y,s P y,s g m,s P m,s g o,s P o,s g s P s (5 Teatmet of duables Follow NIPA teatmet of duables. NIPA teats expeditues o duables as cuet cosumptio. 25 K. Detemiig Govemet Net Wealth Govemet Wealth Govemet et iteest paymets divided by additio of assumed eal iteest ate ad assumed iflatio ate. This appoach makes GA ad aalysis of diffeet geeatios pivate budget costaits to be cosistet with NIPA data, icludig total govemet deficit. 26

14 L. Detemiig Pivate Secto Wealth Use 984 SIPP data Calculate the weighted aveage values of et wealth by age ad sex of et wealth fo 984 ad omalie these values by the weighted aveage value of et wealth of 4-yea-old males. Distibute household wealth to the owe of that wealth, whee oweship is idicated. I the case of maied couples, allocate half of the household s total wealth to each spouse. Set futue values of et wealth by age ad sex equal to the 989 values adjusted fo gowth. 27 M. Choice of Iteest Rate If futue flows to ad fom govemet wee cetai ad iskless, it would be appopiate to use govemet s boowig ate. If ot, depeds o what we mea by fiscal balace i the pesece of ucetaity. - if we wish to coside the paymets fom futue geeatios that we expect will be eeded to povide fiscal balace, the govemet boowig ate is coect. - if agets ae isk avese, the eceipts ad spedig (tasfes should be discouted by highe ate tha govemet boowig ate. 28

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