MEDICARE FROM THE PERSPECTIVE OF GENERATIONAL ACCOUNTING: The Method of Generational Accounting 2

The generational account Ntik is defined by:
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where K=max(t,k). In expression (2), T5tk stands for the projected average net tax payment to the government made in year s by a member of the generation bom in year k. The term Ps,k stands for the number of surviving members of the cohort in year s who were bom in year k. For generations bom prior to year t, the summation begins in year t and is discounted to year t. For generations bom in year k>t, the summation begins in year к and is discounted to that year.

A set of generational accounts is simply a set of values of Ntfk, one for each existing and future generation, with the property that the combined present value adds up to the right hand side of equation (1). Though we distinguish male and female cohorts in many of the results presented below, we suppress sex subscripts in (1) and (2) to limit notation.

Note that generational accounts reflect only taxes paid less transfer payments received. With the exception of government expenditures on health care, which are treated as transfer payments, the accounts do not impute to particular generations the value of the government’s purchases of goods and services because it is difficult to.
Some of our recent generational accounting (e.g., Kotlikoff and Leibfritz, 1999) also treats educational expenditures as a transfer payment.
Therefore, the accounts do not show the full net benefit or burden that any generation receives from government policy as a whole, although they can show a generation’s net benefit or burden from a particular policy change that affects only taxes and transfers. Thus generational accounting tells us which generations will pay for government spending not included in the accounts, rather than telling us which generations will benefit from that spending. This implies nothing about the value of government spending, i.e., there is no assumption, explicit or implicit, concerning the value to households of government purchases. online payday loans