MEDICARE FROM THE PERSPECTIVE OF GENERATIONAL ACCOUNTING: Comparing U.S. Generational Accounts 2

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The first thing to notice in Table 3 is the bottom line that indicates the percentage imbalance in each country’s generational policy. For the U.S., there is a 51.1 percent imbalance. Again, this figure differs from the imbalance reported in Table 1 because of the assumed lower discount rate and the assumed higher labor productivity growth rate. Although the U.S. generational imbalance is sizeable, it is actually relatively small compared to the imbalances in Japan, Italy, and Germany. Their imbalances are 169.3 percent, 131.8 percent, and 92.0 percent, respectively. In other words, future Japanese, Italians, and Germans face lifetime net tax rates which, respectively, are 2,7, 2.3, and 1.9 times as large as those now facing newborn Japanese, Italians, and Germans under current policy. In contrast, France’s 47.1 percent imbalance is smaller than that of the U.S., and Canada’s imbalance is essentially zero. More info

Given the discussion above about the lack of a theoretical basis for deficit accounting, it’s interesting to note the absence of any positive correlation between the size of these imbalances and the countries’ official net debt to GDP ratios. These ratios are .48 for the U.S., .10 for Japan, .45 for Germany, 1.10 for Italy, .69 for Canada, and .36 for France. Thus Japan, which has the largest generational imbalance of the six countries, has the smallest debt-to-GDP ratio, and Canada, which has the smallest generational imbalance, has the second largest debt-to-GDP ratio.