This paper examines the inter-generational financial dimensions and accounting implications of under-funding practices in the public sector. We explain why inter-generational financial disclosure has become such an urgent issue internationally, and discuss a generational accounting framework for calculating the necessary financial information to reveal the inequities and resource allocation problems afflicting public sector organizations. The main limitations, assumptions and applications of a generational approach to analyse the financial sustainability of public sector enterprises are briefly discussed.
Time-Consistent Fiscal Policy in a Debt Crisis - by Neele Balke and Morten O....ADEMU_Project
This document summarizes a research paper analyzing optimal fiscal policy in a sovereign debt model that incorporates feedback from policy to the economy. The key points are:
1) The model considers a production economy with unemployment and inequality, where the government sets taxes, transfers, public goods, and debt without commitment.
2) In normal times, the government uses procyclical fiscal policies but implements austerity (higher taxes and lower transfers/spending) during debt crises to reduce default incentives and access credit markets.
3) Austerity is optimal both when debt is expensive and strategically to commit not to stimulate the economy after defaulting. Commitment to fixed policies would make austerity unnecessary during crises.
This document summarizes a paper that examines the sustainability of pension schemes. It discusses challenges facing defined benefit pension schemes from poor market returns and low interest rates. It also discusses challenges for pay-as-you-go public pension schemes from lower tax revenues and rising fiscal deficits. The paper then presents an actuarial model to estimate costs of supporting occupational and public pension schemes under different assumptions. It analyzes how lower economic growth and aging populations could increase liabilities and contribution rates for pay-as-you-go schemes. Finally, it discusses challenges occupational plans may face from changes in pension accounting standards and derivatives market reforms.
"Funded, compulsory pension funds are under attack in Europe and beyond. But are recent policy actions likely to improve the lot of future pensioners, or will they turn out to be short-term politically-motivated fixes that ultimately make life harder?"
Authored by: Luca Barbone
Published in 2011
-Key sources of risk in the pay-out phase and retirement products
-Pay-out options and risk trade-offs
-Lump sum payments
-Programmed withdrawals
-Life annuities
-Reverse mortgage as a retirement financing instrument
-The role of public policy interventions
This document analyzes the political economy of financialization in UK pensions provision and intergenerational justice. It discusses how pensions require long-term cooperation between generations but financialization and changing demographics/economics undermine this. The state increasingly relies on individuals and markets through policies like auto-enrollment, despite risks. Critics argue this entrenches financialization rather than addressing its failures, and judge social provisions on "deservingness" not systematic needs. Alternative approaches proposed include citizens' payments, nationalizing pensions, and reducing the costs burden on pensions through lifecourse tax approaches.
This document discusses intergovernmental fiscal relations and the assignment of functions, revenues, and expenditures across levels of government. It addresses key topics such as:
- Assigning functions like macroeconomic stabilization, income distribution, and resource allocation between national and subnational governments.
- Assigning revenue sources and balancing revenue-raising responsibilities with expenditure responsibilities to avoid vertical and horizontal imbalances.
- Using intergovernmental transfers to equalize fiscal capacities and needs among jurisdictions.
- Techniques for regulating intergovernmental relations like attaching conditions to grants or establishing national standards.
Jonathan Rodden - Representation and Redistribution in Federations: Lessons f...ADEMU_Project
Professor Jonathan Rodden, Stanford University, describes how he has applied his on work on numerous federations in the United States and extracted lessons and principles that could be theoretically applied to the European Monetary Union.
The document discusses the public debt crisis in the United States. It notes that there have been five major debt crises since 1790 where federal debt sharply increased. The Great Recession caused the second largest debt spike and it is unique in that primary deficits have persisted for over 6 years after the recession and are expected to continue through 2026. The document also argues against the view that more debt is desirable, noting empirical evidence that fiscal multipliers are negative at high debt levels and debt sustainability becomes an issue. It analyzes factors like demand for U.S. debt from globalization and risk of domestic default.
Time-Consistent Fiscal Policy in a Debt Crisis - by Neele Balke and Morten O....ADEMU_Project
This document summarizes a research paper analyzing optimal fiscal policy in a sovereign debt model that incorporates feedback from policy to the economy. The key points are:
1) The model considers a production economy with unemployment and inequality, where the government sets taxes, transfers, public goods, and debt without commitment.
2) In normal times, the government uses procyclical fiscal policies but implements austerity (higher taxes and lower transfers/spending) during debt crises to reduce default incentives and access credit markets.
3) Austerity is optimal both when debt is expensive and strategically to commit not to stimulate the economy after defaulting. Commitment to fixed policies would make austerity unnecessary during crises.
This document summarizes a paper that examines the sustainability of pension schemes. It discusses challenges facing defined benefit pension schemes from poor market returns and low interest rates. It also discusses challenges for pay-as-you-go public pension schemes from lower tax revenues and rising fiscal deficits. The paper then presents an actuarial model to estimate costs of supporting occupational and public pension schemes under different assumptions. It analyzes how lower economic growth and aging populations could increase liabilities and contribution rates for pay-as-you-go schemes. Finally, it discusses challenges occupational plans may face from changes in pension accounting standards and derivatives market reforms.
"Funded, compulsory pension funds are under attack in Europe and beyond. But are recent policy actions likely to improve the lot of future pensioners, or will they turn out to be short-term politically-motivated fixes that ultimately make life harder?"
Authored by: Luca Barbone
Published in 2011
-Key sources of risk in the pay-out phase and retirement products
-Pay-out options and risk trade-offs
-Lump sum payments
-Programmed withdrawals
-Life annuities
-Reverse mortgage as a retirement financing instrument
-The role of public policy interventions
This document analyzes the political economy of financialization in UK pensions provision and intergenerational justice. It discusses how pensions require long-term cooperation between generations but financialization and changing demographics/economics undermine this. The state increasingly relies on individuals and markets through policies like auto-enrollment, despite risks. Critics argue this entrenches financialization rather than addressing its failures, and judge social provisions on "deservingness" not systematic needs. Alternative approaches proposed include citizens' payments, nationalizing pensions, and reducing the costs burden on pensions through lifecourse tax approaches.
This document discusses intergovernmental fiscal relations and the assignment of functions, revenues, and expenditures across levels of government. It addresses key topics such as:
- Assigning functions like macroeconomic stabilization, income distribution, and resource allocation between national and subnational governments.
- Assigning revenue sources and balancing revenue-raising responsibilities with expenditure responsibilities to avoid vertical and horizontal imbalances.
- Using intergovernmental transfers to equalize fiscal capacities and needs among jurisdictions.
- Techniques for regulating intergovernmental relations like attaching conditions to grants or establishing national standards.
Jonathan Rodden - Representation and Redistribution in Federations: Lessons f...ADEMU_Project
Professor Jonathan Rodden, Stanford University, describes how he has applied his on work on numerous federations in the United States and extracted lessons and principles that could be theoretically applied to the European Monetary Union.
The document discusses the public debt crisis in the United States. It notes that there have been five major debt crises since 1790 where federal debt sharply increased. The Great Recession caused the second largest debt spike and it is unique in that primary deficits have persisted for over 6 years after the recession and are expected to continue through 2026. The document also argues against the view that more debt is desirable, noting empirical evidence that fiscal multipliers are negative at high debt levels and debt sustainability becomes an issue. It analyzes factors like demand for U.S. debt from globalization and risk of domestic default.
20151008 The Future Book - Edition 2015 finalSarah Luheshi
The document provides an overview of the UK pension system and changes that have impacted defined contribution pensions. It describes the state pension system and voluntary private pensions. It outlines risks in pension saving and how defined benefit, defined contribution, and hybrid schemes allocate risks differently. It also discusses demographic trends like increasing lifespans and market changes that have reduced defined benefit provision, leading to more people saving in defined contribution schemes.
Crisis and Trust in National and European Union institutions – Panel evidence...Wikiprogress_slides
Presentation by Felix Roth at the OECD Workshop on “Joint Learning for an OECD Trust Strategy” on 14 October 2013. Dr. Roth discusses the consequences of citizens declining trust and the driving factors of declining trust in Europe. He also provides an econometric analysis of trust and unemployment.
Fiscally sound social inclusion: what, if any, lesson may EMU learn from the ...ADEMU_Project
The document summarizes Brazil's experience with fiscal rules and centralization over the past century, and discusses lessons that may be applicable to the European Monetary Union. Key points:
- Brazil has experimented with various degrees of fiscal centralization vs federalism over the decades, seeking the right balance of governability and representation.
- Recent fiscal rules like the 2000 Fiscal Responsibility Law helped rein in subnational debt and inflation, improving credibility. However, unexpected oil wealth and the global crisis relaxed constraints.
- The current administration expanded social spending and allowed new subnational debt, weakening fiscal discipline. Impeachment raised expectations of a return to responsible fiscal policies and stability.
The document outlines 10 steps for analyzing public expenditure programs: 1) identifying the need for the program, 2) the market failure addressed, 3) alternatives to the program, 4) design features and eligibility standards, 5) private sector responses, 6) efficiency consequences like substitution and income effects, 7) distributional consequences and who benefits, 8) equity-efficiency tradeoffs, 9) other public policy objectives, and 10) considering how the political process shaped the program. It provides examples to illustrate several steps, such as how subsidies may crowd out private support or how price controls can impact supply.
Fiscal Federalism and Comparative Analysis of Practices Regarding Political D...Philippine Press Institute
1) The document discusses principles of fiscal federalism including the need for subnational governments to have substantial revenue raising powers and transfers to remedy fiscal gaps.
2) Guidelines are provided for assigning taxes and transfers between different levels of government. Taxes should relate to responsibilities and mobility, transfers should consider population, income, and performance.
3) Political dynasties are discussed as a challenge for federalism, with roots in inequality, lack of checks and balances, and culture. Ways to address this include fiscal decentralization with discipline, multi-member districts, and empowering voters and civil society.
- The document discusses welfare reform and the role of income protection insurance. It notes that the current welfare system assumes households will take responsibility for their own financial safety nets, but many do not.
- Around 1 million workers become unable to work each year due to illness or injury. Income protection insurance, provided through employers, can help replace lost income and support households, businesses, and the economy.
- Alternative models combining state support and private insurance need to be explored to make household income safety nets clear and meet diverse needs, while reducing welfare costs. Income protection insurance should be part of the solution.
Allianz International Pensions previously created the Pension Sustainability Index (PSI) following the pressure on public pension systems due to aging demographics and deteriorating government finances. The PSI combines the various characteristics of pension systems with the factors that influence them to help track and evaluate policy changes
made in different countries around the world.
It is impossible to stay solvent with increasing liabilities and decreasing assets. State and Municipal governments are faced with a crucial problem; how to pay off public sector pension plans which have been left underfunded for years. Adding insult to
injury, the market values of the portfolios used to fund these pensions plans have been crippled in the Great Recession. Even more troubling, these defined pension plans, by law, are guaranteed for nearly 80% of public officials no matter the performance of the underlying assets used to finance them. Legislatures are faced with few options; raise taxes, cut spending elsewhere or default on their GO debt.
1) Total government debt levels in OECD countries have risen dramatically due to deficits incurred from responding to the financial crisis, putting pressure on government budgets.
2) At the same time, financing is still needed for goals like poverty reduction and climate change mitigation.
3) A financial transaction tax is proposed as the best policy alternative to raise revenues from the financial sector to address these issues, rather than increasing taxes on individuals or public spending cuts.
4) Unlike an insurance scheme or tax on bank balance sheets, a financial transaction tax could generate hundreds of billions annually, curb speculative trading, and regulate the financial sector in a low-cost way.
201509 BN76 Financial Education and Retirement finalSarah Luheshi
This document discusses international approaches to financial education for retirement planning and decision-making. It summarizes examples from 5 countries:
1) Denmark provides simplified pension statements and found high satisfaction rates. This approach focuses on clear communication.
2) Sweden's Pensions Dashboard allows viewing all pension entitlements, though no specific evaluation was given.
3) New Zealand's Sorted website covers pensions alongside other topics, and saving rates increased after its launch.
4) The Netherlands holds annual Pensions Days for information, and scores highly on pension communication quality.
5) A US program auto-escalated pension contributions over time, significantly increasing employee savings rates.
The document evaluates different countries' approaches
Session Six: Inclusive Growth Design Of Inter Governmental Transfers, Meeting...OECDtax
This document discusses conditional intergovernmental transfers between central and subnational governments. It provides background on different types of conditional transfers, including input-based, output-based, and performance-linked transfers. It examines India's experience with conditional transfers through Finance Commission grants and Centrally Sponsored Schemes. It also discusses global best practices, including jointly designing transfers, using transfers to drive fiscal and administrative reforms, and addressing non-compliance. The key lessons are to jointly develop objectives and conditions, use different transfers for different goals, create an intergovernmental forum, and design effective compliance incentives and penalties.
Effect of payment balance and current account on deficit of jordanian budget ...Alexander Decker
This document discusses the relationship between Jordan's budget deficit, current account deficit, and payment balance deficit from 1992-2012. It analyzes the impact of fiscal adjustments from 1996-1999 and subsequent events and policies. The main findings are that there is one cointegration relationship between the variables, indicating a long-term relationship. If no action is taken on the budget deficit, dynamic relationships will persist between these deficits.
The document discusses Turkey's private pension system and recent regulations that affect savings. It provides an overview of Turkey's private pension system established in 2001, including key statistics as of 2013. It then compares Turkey's system to those of peer countries like Czech Republic, Chile, and Poland. The document concludes by projecting growth of Turkey's private pension assets over the next 10 years, anticipating the system could reach $90-100 billion in assets by 2020 with 5.5-6 million participants, though more needs to be done to increase financial literacy and support for lower income groups.
Une étude de la Commission européenne compare la générosité des systèmes de c...lesoirbe
This paper proposes a methodology for benchmarking unemployment benefit systems across EU countries. It assesses systems based on their effectiveness in providing income support, their impact on incentives to work, and overall generosity. The methodology considers dimensions like entitlement conditions, unemployment/inactivity traps, benefit duration and replacement rates over time. Countries are compared to EU averages and averages for relevant country groupings that share similar labor market institutions and flexicurity models. Applying this methodology allows for a more thorough evaluation of unemployment systems and identification of reform priorities.
Tutkimuksessa tarkasteltiin työikäisen väestön, 20–59-vuotiaat vuonna 2000, tuloriskejä Tilastokeskuksesta hankitun laajan rekisteripohjaisen paneeliaineiston avulla. Vero- ja sosiaaliturvajärjestelmää tarkastellaan laajana sosiaalivakuutuksena ja vaikutusta riskiin mitataan tuotannontekijä-, brutto- ja käytettävissä olevien tulojen riskipreemioiden peräkkäisten erotusten avulla. Ennakkoon ennustetut (ex ante) toimeentuloriskit estimoidaan dynaamisen, eteenpäin katsovan mallin avulla. Logaritmimuotoinen malli kuvaa tuloliikkuvuutta suhteessa väestöryhmän vuosittaisiin keskituloihin. Estimoinnit perustuvat väestöositukseen, joka määräytyy ennusteperiodia edeltävän, syntymävuosikohortin, koulutusasteen ja sosioekonomisen aseman perusteella. Tulosten perusteella vero- ja tulonsiirtojärjestelmä pienentää merkittävästi kotitalouksien tulonvaihtelua ja tuloriskiä. Tästä näyttävät hyötyvän eniten ne ryhmät, joissa markkinatulojenriskit olivat suurimmat. Tulosten perusteella julkinen sektori saa aikaan merkittävää riskien (tulojen vaihtelun) uudelleenjakoa, joka täydentää tulonsiirtojen uudelleenjakoroolia. Välittömän verotuksen merkitys on huomattavasti tulonsiirtoja pienempi. Toteutuneihin arvoihin perustuvat (ex post) riskimittarit antoivat samansuuntaisia tuloksia kuin dynaamiseen malliin perustuvat mittarit. Kvalitatiivisesti arvioituna tulokset ovat myös pitkälle riippumattomia siitä, mitä riskinkaihtamisparametria laskelmissa käytetään.
Presentation by Dóra Györffy at the OECD Workshop on “Joint Learning for an OECD Trust Strategy” on 14 October 2013. Ms. Györffy discusses trust in-depth including its relationship with decision-making, economic policy, popularity of government and its influence on the crisis.
The 2016 OECD Pensions Outlook launches on 5 December. This flyer describes what is in the publication and the complementary publication "Life Annuity Products and their Guarantees". Find out more at http://www.oecd.org/pensions/oecd-pensions-outlook.htm
17 - Addressing longevity heterogeneity in pension scheme design and reform (...InstitutoBBVAdePensiones
This document discusses how heterogeneity in longevity across socioeconomic groups can act as an implicit tax/subsidy mechanism in pension schemes. It finds that differences in life expectancy linked to lifetime income can result in taxes of up to 20% for lower-income groups and subsidies of similar magnitude for higher-income groups. This longevity heterogeneity has implications for pension reform goals like strengthening the contribution-benefit link and increasing retirement ages. The document explores policy options to address longevity heterogeneity, such as interventions at the accumulation, annuitization, or disbursement stages of a pension scheme, and models how a two-tier contribution structure could help compensate for differences in life expectancy related to income.
ECONOMIC COMMENTARY Number 2014-09May 8, 2014Why Do Econom.docxtidwellveronique
ECONOMIC COMMENTARY Number 2014-09May 8, 2014
Why Do Economists Still Disagree over
Government Spending Multipliers?
Daniel Carroll
Public debate about the effects of government spending heated up after record-large stimulus packages were enacted
to address the fallout of the fi nancial crisis. Almost as noticeable as the discord was the absence of consensus among
prominent economists on the issue. While it seems a simple problem to estimate the effect of government spending on
output—the size of the government multiplier—it is anything but.
ISSN 0428-1276
Over the past several years, attention has focused on the
dangers of medium- and long-run imbalances in government
budgets. This was less the case at the beginning of the
recent fi nancial crisis, when the question was if and how the
government should try to stimulate the economy. But before
long, the debate surfaced. Some argued that the government
should prop up falling private demand with increased
spending. Others claimed that increased government
spending would have little to no stimulative effect in the
short run and that it might even be contractionary.
Economists could offer little in the way of clarifi cation, with
venerated scholars falling on both sides of the debate. This
failure of economists to agree on the issue leads some in
the public to suppose that economists are incompetent, or
perhaps worse, politically motivated.
The truth is that economists have struggled to answer
the question, “What effect does an increase in government
spending today have on output in the future?” In economics,
this effect is called the government spending multiplier,
and unfortunately for those of us who would like certainty
on the matter, there are major challenges associated with
measuring it. An appreciation for these challenges should
explain why competent scholars can hold widely different
opinions about the effect of government spending on output.
Measurement Challenges
Problems with measuring the government spending
multiplier begin at the outset—with the way the question
itself is phrased. At fi rst, it seems like a natural question,
but in fact it is far too general.
For starters, it is presumptuous to speak of “the”
government spending multiplier as if there is only one.
Because a change in government spending is likely to
infl uence output over multiple periods in the future, separate
multipliers could be created for each period. To calculate
the appropriate multiplier, should we look at how much
output changes one quarter in the future? One year? Five
years? There is no universally accepted answer. Some studies
report a collection of multipliers over a specifi c time period
(for example, a multiplier for each quarter up to three years).
Others average these numbers or report a range.
Taking a stand on timing is not suffi cient however. One
must also consider what type of government spending
is increased. Surely an increase in milita.
The four dimensions of public financial managementicgfmconference
In two relatively short articles, Michael Parry first proposes a definition of the modified cash basis of accounting and then describes the four dimensions of public financial management. We welcome this approach of relatively short articles addressing key issues in governmental financial management and would encourage other authors to follow Michael’s example in future issues.
20151008 The Future Book - Edition 2015 finalSarah Luheshi
The document provides an overview of the UK pension system and changes that have impacted defined contribution pensions. It describes the state pension system and voluntary private pensions. It outlines risks in pension saving and how defined benefit, defined contribution, and hybrid schemes allocate risks differently. It also discusses demographic trends like increasing lifespans and market changes that have reduced defined benefit provision, leading to more people saving in defined contribution schemes.
Crisis and Trust in National and European Union institutions – Panel evidence...Wikiprogress_slides
Presentation by Felix Roth at the OECD Workshop on “Joint Learning for an OECD Trust Strategy” on 14 October 2013. Dr. Roth discusses the consequences of citizens declining trust and the driving factors of declining trust in Europe. He also provides an econometric analysis of trust and unemployment.
Fiscally sound social inclusion: what, if any, lesson may EMU learn from the ...ADEMU_Project
The document summarizes Brazil's experience with fiscal rules and centralization over the past century, and discusses lessons that may be applicable to the European Monetary Union. Key points:
- Brazil has experimented with various degrees of fiscal centralization vs federalism over the decades, seeking the right balance of governability and representation.
- Recent fiscal rules like the 2000 Fiscal Responsibility Law helped rein in subnational debt and inflation, improving credibility. However, unexpected oil wealth and the global crisis relaxed constraints.
- The current administration expanded social spending and allowed new subnational debt, weakening fiscal discipline. Impeachment raised expectations of a return to responsible fiscal policies and stability.
The document outlines 10 steps for analyzing public expenditure programs: 1) identifying the need for the program, 2) the market failure addressed, 3) alternatives to the program, 4) design features and eligibility standards, 5) private sector responses, 6) efficiency consequences like substitution and income effects, 7) distributional consequences and who benefits, 8) equity-efficiency tradeoffs, 9) other public policy objectives, and 10) considering how the political process shaped the program. It provides examples to illustrate several steps, such as how subsidies may crowd out private support or how price controls can impact supply.
Fiscal Federalism and Comparative Analysis of Practices Regarding Political D...Philippine Press Institute
1) The document discusses principles of fiscal federalism including the need for subnational governments to have substantial revenue raising powers and transfers to remedy fiscal gaps.
2) Guidelines are provided for assigning taxes and transfers between different levels of government. Taxes should relate to responsibilities and mobility, transfers should consider population, income, and performance.
3) Political dynasties are discussed as a challenge for federalism, with roots in inequality, lack of checks and balances, and culture. Ways to address this include fiscal decentralization with discipline, multi-member districts, and empowering voters and civil society.
- The document discusses welfare reform and the role of income protection insurance. It notes that the current welfare system assumes households will take responsibility for their own financial safety nets, but many do not.
- Around 1 million workers become unable to work each year due to illness or injury. Income protection insurance, provided through employers, can help replace lost income and support households, businesses, and the economy.
- Alternative models combining state support and private insurance need to be explored to make household income safety nets clear and meet diverse needs, while reducing welfare costs. Income protection insurance should be part of the solution.
Allianz International Pensions previously created the Pension Sustainability Index (PSI) following the pressure on public pension systems due to aging demographics and deteriorating government finances. The PSI combines the various characteristics of pension systems with the factors that influence them to help track and evaluate policy changes
made in different countries around the world.
It is impossible to stay solvent with increasing liabilities and decreasing assets. State and Municipal governments are faced with a crucial problem; how to pay off public sector pension plans which have been left underfunded for years. Adding insult to
injury, the market values of the portfolios used to fund these pensions plans have been crippled in the Great Recession. Even more troubling, these defined pension plans, by law, are guaranteed for nearly 80% of public officials no matter the performance of the underlying assets used to finance them. Legislatures are faced with few options; raise taxes, cut spending elsewhere or default on their GO debt.
1) Total government debt levels in OECD countries have risen dramatically due to deficits incurred from responding to the financial crisis, putting pressure on government budgets.
2) At the same time, financing is still needed for goals like poverty reduction and climate change mitigation.
3) A financial transaction tax is proposed as the best policy alternative to raise revenues from the financial sector to address these issues, rather than increasing taxes on individuals or public spending cuts.
4) Unlike an insurance scheme or tax on bank balance sheets, a financial transaction tax could generate hundreds of billions annually, curb speculative trading, and regulate the financial sector in a low-cost way.
201509 BN76 Financial Education and Retirement finalSarah Luheshi
This document discusses international approaches to financial education for retirement planning and decision-making. It summarizes examples from 5 countries:
1) Denmark provides simplified pension statements and found high satisfaction rates. This approach focuses on clear communication.
2) Sweden's Pensions Dashboard allows viewing all pension entitlements, though no specific evaluation was given.
3) New Zealand's Sorted website covers pensions alongside other topics, and saving rates increased after its launch.
4) The Netherlands holds annual Pensions Days for information, and scores highly on pension communication quality.
5) A US program auto-escalated pension contributions over time, significantly increasing employee savings rates.
The document evaluates different countries' approaches
Session Six: Inclusive Growth Design Of Inter Governmental Transfers, Meeting...OECDtax
This document discusses conditional intergovernmental transfers between central and subnational governments. It provides background on different types of conditional transfers, including input-based, output-based, and performance-linked transfers. It examines India's experience with conditional transfers through Finance Commission grants and Centrally Sponsored Schemes. It also discusses global best practices, including jointly designing transfers, using transfers to drive fiscal and administrative reforms, and addressing non-compliance. The key lessons are to jointly develop objectives and conditions, use different transfers for different goals, create an intergovernmental forum, and design effective compliance incentives and penalties.
Effect of payment balance and current account on deficit of jordanian budget ...Alexander Decker
This document discusses the relationship between Jordan's budget deficit, current account deficit, and payment balance deficit from 1992-2012. It analyzes the impact of fiscal adjustments from 1996-1999 and subsequent events and policies. The main findings are that there is one cointegration relationship between the variables, indicating a long-term relationship. If no action is taken on the budget deficit, dynamic relationships will persist between these deficits.
The document discusses Turkey's private pension system and recent regulations that affect savings. It provides an overview of Turkey's private pension system established in 2001, including key statistics as of 2013. It then compares Turkey's system to those of peer countries like Czech Republic, Chile, and Poland. The document concludes by projecting growth of Turkey's private pension assets over the next 10 years, anticipating the system could reach $90-100 billion in assets by 2020 with 5.5-6 million participants, though more needs to be done to increase financial literacy and support for lower income groups.
Une étude de la Commission européenne compare la générosité des systèmes de c...lesoirbe
This paper proposes a methodology for benchmarking unemployment benefit systems across EU countries. It assesses systems based on their effectiveness in providing income support, their impact on incentives to work, and overall generosity. The methodology considers dimensions like entitlement conditions, unemployment/inactivity traps, benefit duration and replacement rates over time. Countries are compared to EU averages and averages for relevant country groupings that share similar labor market institutions and flexicurity models. Applying this methodology allows for a more thorough evaluation of unemployment systems and identification of reform priorities.
Tutkimuksessa tarkasteltiin työikäisen väestön, 20–59-vuotiaat vuonna 2000, tuloriskejä Tilastokeskuksesta hankitun laajan rekisteripohjaisen paneeliaineiston avulla. Vero- ja sosiaaliturvajärjestelmää tarkastellaan laajana sosiaalivakuutuksena ja vaikutusta riskiin mitataan tuotannontekijä-, brutto- ja käytettävissä olevien tulojen riskipreemioiden peräkkäisten erotusten avulla. Ennakkoon ennustetut (ex ante) toimeentuloriskit estimoidaan dynaamisen, eteenpäin katsovan mallin avulla. Logaritmimuotoinen malli kuvaa tuloliikkuvuutta suhteessa väestöryhmän vuosittaisiin keskituloihin. Estimoinnit perustuvat väestöositukseen, joka määräytyy ennusteperiodia edeltävän, syntymävuosikohortin, koulutusasteen ja sosioekonomisen aseman perusteella. Tulosten perusteella vero- ja tulonsiirtojärjestelmä pienentää merkittävästi kotitalouksien tulonvaihtelua ja tuloriskiä. Tästä näyttävät hyötyvän eniten ne ryhmät, joissa markkinatulojenriskit olivat suurimmat. Tulosten perusteella julkinen sektori saa aikaan merkittävää riskien (tulojen vaihtelun) uudelleenjakoa, joka täydentää tulonsiirtojen uudelleenjakoroolia. Välittömän verotuksen merkitys on huomattavasti tulonsiirtoja pienempi. Toteutuneihin arvoihin perustuvat (ex post) riskimittarit antoivat samansuuntaisia tuloksia kuin dynaamiseen malliin perustuvat mittarit. Kvalitatiivisesti arvioituna tulokset ovat myös pitkälle riippumattomia siitä, mitä riskinkaihtamisparametria laskelmissa käytetään.
Presentation by Dóra Györffy at the OECD Workshop on “Joint Learning for an OECD Trust Strategy” on 14 October 2013. Ms. Györffy discusses trust in-depth including its relationship with decision-making, economic policy, popularity of government and its influence on the crisis.
The 2016 OECD Pensions Outlook launches on 5 December. This flyer describes what is in the publication and the complementary publication "Life Annuity Products and their Guarantees". Find out more at http://www.oecd.org/pensions/oecd-pensions-outlook.htm
17 - Addressing longevity heterogeneity in pension scheme design and reform (...InstitutoBBVAdePensiones
This document discusses how heterogeneity in longevity across socioeconomic groups can act as an implicit tax/subsidy mechanism in pension schemes. It finds that differences in life expectancy linked to lifetime income can result in taxes of up to 20% for lower-income groups and subsidies of similar magnitude for higher-income groups. This longevity heterogeneity has implications for pension reform goals like strengthening the contribution-benefit link and increasing retirement ages. The document explores policy options to address longevity heterogeneity, such as interventions at the accumulation, annuitization, or disbursement stages of a pension scheme, and models how a two-tier contribution structure could help compensate for differences in life expectancy related to income.
ECONOMIC COMMENTARY Number 2014-09May 8, 2014Why Do Econom.docxtidwellveronique
ECONOMIC COMMENTARY Number 2014-09May 8, 2014
Why Do Economists Still Disagree over
Government Spending Multipliers?
Daniel Carroll
Public debate about the effects of government spending heated up after record-large stimulus packages were enacted
to address the fallout of the fi nancial crisis. Almost as noticeable as the discord was the absence of consensus among
prominent economists on the issue. While it seems a simple problem to estimate the effect of government spending on
output—the size of the government multiplier—it is anything but.
ISSN 0428-1276
Over the past several years, attention has focused on the
dangers of medium- and long-run imbalances in government
budgets. This was less the case at the beginning of the
recent fi nancial crisis, when the question was if and how the
government should try to stimulate the economy. But before
long, the debate surfaced. Some argued that the government
should prop up falling private demand with increased
spending. Others claimed that increased government
spending would have little to no stimulative effect in the
short run and that it might even be contractionary.
Economists could offer little in the way of clarifi cation, with
venerated scholars falling on both sides of the debate. This
failure of economists to agree on the issue leads some in
the public to suppose that economists are incompetent, or
perhaps worse, politically motivated.
The truth is that economists have struggled to answer
the question, “What effect does an increase in government
spending today have on output in the future?” In economics,
this effect is called the government spending multiplier,
and unfortunately for those of us who would like certainty
on the matter, there are major challenges associated with
measuring it. An appreciation for these challenges should
explain why competent scholars can hold widely different
opinions about the effect of government spending on output.
Measurement Challenges
Problems with measuring the government spending
multiplier begin at the outset—with the way the question
itself is phrased. At fi rst, it seems like a natural question,
but in fact it is far too general.
For starters, it is presumptuous to speak of “the”
government spending multiplier as if there is only one.
Because a change in government spending is likely to
infl uence output over multiple periods in the future, separate
multipliers could be created for each period. To calculate
the appropriate multiplier, should we look at how much
output changes one quarter in the future? One year? Five
years? There is no universally accepted answer. Some studies
report a collection of multipliers over a specifi c time period
(for example, a multiplier for each quarter up to three years).
Others average these numbers or report a range.
Taking a stand on timing is not suffi cient however. One
must also consider what type of government spending
is increased. Surely an increase in milita.
The four dimensions of public financial managementicgfmconference
In two relatively short articles, Michael Parry first proposes a definition of the modified cash basis of accounting and then describes the four dimensions of public financial management. We welcome this approach of relatively short articles addressing key issues in governmental financial management and would encourage other authors to follow Michael’s example in future issues.
This document is a 5960 word independent study report that examines whether the proportion of Chapter 7 to Chapter 13 bankruptcy filings in the USA influences consumption levels. It contains an introduction outlining the research question, a literature review of previous related studies, a description of the economic framework and methodology, an analysis of the results, and conclusions. The key findings are that a significant positive correlation was found between a state's proportion of bankruptcy filings and its consumption per capita, providing evidence that a higher proportion of Chapter 7 filings may be beneficial to a state's economy.
CBO uses several models to analyze the effects of fiscal policy. In CBO’s view, changes in fiscal policy affect the economy in both the short and long term:
Short-term effects are driven by changes in the demand for goods and services (such as consumption and investment) and changes in supply-side factors (such as growth in productivity and the supply of labor), as well as by the interactions between them.
Long-term effects are primarily driven by changes in supply-side factors such as national saving, productivity, and people’s incentives to work, save, and invest.
The life-cycle growth model (also called an overlapping-generations, or OLG, model) is one model that CBO uses to estimate the long-term effects of changes in fiscal policy. CBO uses the model to analyze the effects of fiscal policy on the following:
People’s incentives to work and save; the distribution of income, wealth, consumption, and taxes across households; and
the well-being of different generations of households.
The life-cycle growth model is one model that CBO uses to estimate the long-term effects of changes in fiscal policy. For example, the model can analyze the effects of changes to the Social Security system.
1) The document discusses the effects of three different types of fiscal policy shocks in eurozone countries using the MARMOTTE economic model: an increase in government expenditure, a reduction in corporate profit taxes, and a reduction in wage taxes.
2) For an increase in government expenditure, the model shows higher inflation in the short run as demand increases, which the ECB fights by raising interest rates. This leads to lower consumption, investment, employment and potential output in the long run. Prices are higher in the long run as well.
3) For a reduction in corporate profit taxes, the model shows higher investment, employment, potential output, and consumption over time. This leads to initial higher inflation followed
The federal budget is a measure of the overall scope and magnitude of federal activities that involve the spending or collection of money. The net costs of those activities are shown in the budget mostly on a cash basis, but some transactions are recorded by means of accrual accounting. This presentation discusses the relative merits of cash and accrual measures when accounting for various federal insurance programs and federal retirement programs.
Microsoft Word Stabilizingtransfers2 6 02 RosenblattG Garcia
This document summarizes a paper examining how intergovernmental transfers can stabilize fiscal burdens across levels of government during economic fluctuations. It discusses conditions where stabilizing transfers are most appropriate, including when subnational governments face credit constraints. The document analyzes fiscal performance in Argentina, Brazil, Colombia, and Mexico during recent economic cycles, focusing on Argentina and Colombia which have rules stabilizing transfers. It finds stabilizing transfers can complement national and subnational fiscal rules by helping manage boom-bust cycles in developing country contexts.
The federal budget is a measure of the overall scope and magnitude of federal activities that involve the spending or collection of money. The net costs of those activities are shown in the budget mostly on a cash basis, but some transactions are recorded by means of accrual accounting. This presentation discusses the advantages and disadvantages of cash and accrual measures when accounting for various federal insurance programs and federal retirement programs.
This thesis examines how policymakers should respond during times of financial sector distress. It outlines that policymakers face two critical tasks: 1) identifying and addressing the issues critical to the crisis, and 2) ensuring the financial sector reaches a new equilibrium. The importance and nature of these tasks will be illustrated using evidence from the Asian Financial Crisis and the U.S. Savings and Loans Crisis. Frameworks will also be proposed to guide policymakers in accomplishing each task.
This document summarizes a working paper that analyzes demographic policy responses to population aging and decline in developed countries. It discusses three policy areas: promoting fertility through family policies like parental leave and child benefits, increasing retirement ages and labor market policies to encourage longer working lives, and managing immigration. The paper finds that cash transfers and childcare support can modestly increase fertility rates. It also argues that retirement and labor policies need to keep older workers healthy, skilled and motivated to work longer. Immigration policies face political and economic challenges in offsetting population aging. The paper evaluates tradeoffs between these policy options in terms of their impact on extending retirement years.
This document analyzes the potential benefits of transitioning the UK's large unfunded public sector pension schemes to a funded model. Such a move could enable them to become global investment powerhouses, provide cheaper financing for the government, and deliver better outcomes for taxpayers and public sector workers. However, it would also face significant political opposition and require bold leadership. The document argues that while challenging, transitioning these schemes now could generate substantial long-term economic and fiscal benefits for the UK.
How can the U.S. transition to personal public private social security saving...Matias Zelikowicz
This document provides an overview of the challenges facing social security and state pension plans in the United States. It discusses the demographic pressures on these systems from factors like increasing life expectancies and the retirement of baby boomers. The document also examines problems like underfunding of state pension plans. It proposes a transition to a system of personal public-private social security saving accounts (PPPSSS) that would allow some investment choice. Key investment options discussed for these accounts include market-linked CDs.
This document discusses fiscal deficit and ways to control it. It begins by defining fiscal deficit as when a government's total expenditures exceed its total revenues, forcing it to borrow money to make up the difference. It then discusses the impacts of fiscal deficit, including debates around whether deficits help or hurt economic growth. Three main ways to control fiscal deficit discussed are implementing fiscal policy rules to promote discipline, increasing transparency in fiscal management, and reducing spending while increasing taxation. The document argues that public debt does matter and future taxpayers will be obligated to pay off the debt and accumulated interest.
The document discusses a study that analyzed the stock market reactions to debt relief agreements under the Brady Plan for Less Developed Countries (LDCs). The main findings were:
1) LDC stock markets appreciated by an average of 60% after announcing Brady agreements, representing a $42 billion increase in shareholder value. Control countries without agreements saw no increase.
2) US bank stocks with LDC exposure rose 35% after Brady agreements, a $13 billion increase.
3) The results suggest debt relief generated large efficiency gains when countries suffered from debt overhang, as it increased incentives for investment and growth. Stock market responses successfully predicted higher future resource transfers, investment, and growth.
We welcome the decision by the International Public Sector Accounting Standards Board (IPSASB) to review the Cash Basis IPSAS, but we are reminded of the story of the pedestrian who was asked by a motorist for directions, and replied, “If I was you I wouldn’t start from here...”.
FDA Website AssignmentGo to FDA website www.fda.gov1. Unde.docxssuser454af01
FDA Website AssignmentGo to FDA website www.fda.gov1. Under “Laws FDA Enforces”, go to the Federal Food, Drug and Cosmetic Act and read Chapter 2, Definitions, particularly the definition of drugs and devices.2. Write a paper, 500 words, describing A. three things that you as a consumer can learn from the web page andB. three things that you as a part of industry can learn from the web page
Background
Following the finish of the common war and the adjustment of the residential cash by the national bank, the principal compensation change process occurred in 1996, and a novel correction in 2008 allowed a singular amount increment of LBP 200,000 every month for both open and private divisions representatives, conveying the lowest pay permitted by law up to LBP 500,000 from LBP 300,000.1 For the following sixteen years, in any case, there were no wage increments despite the fact that swelling continued rising and achieved a hundred percent and the acquiring energy of the Lebanese individuals began to drop significantly.2
In an examination led by the Lebanese Federation of Consumer Protection, Lebanon was positioned first among 14 Arab nations regarding high costs for meat, sugar, tea, and drain, and it positioned second when it came to tomato, potato, and vegetable oil costs. The investigation credited these outcomes to the nearness of ineffectively aggressive buyer markets (restraining infrastructures), and to the non-implementation of controls identified with settling business benefit margins.3 These variables and others have added to a noteworthy abatement in the offer of wages in the Gross Domestic Product, which a few substances claim to have achieved a low of 30%.4
By mid of 2011, speaks began mounting about the low level of wages that is keeping Lebanese laborers from fulfilling their essential needs in light of rising sustenance costs and the cost of fundamental administrations like power and transportation. In fact, the issue of wages modification wound up noticeably one of the best needs on general society scene over a five-month time frame between September 2011 and January 2012. These discussions were at first supported by a "political open door" that was emerged by the arrangement of another administration in July 2011 and which pronounced putting social equity among its priorities.5 They were likewise convenient on account of the drawing closer of the new scholastic year that involves along the weight of rising school and college educational cost charges.
The procedure began with an exchange among different concerned gatherings, including the Presidency of the Council of Ministers, the Ministry of Labor, monetary bodies, and worker's guilds. Notwithstanding, the level headed discussion swelled into a contention that undermined the solidarity of the administration before coming full circle in the selection of the wage alteration announce No. 7426 amid the January 18, 2012 session of the Lebanese Cabinet.
This area condenses ...
After the US dollar replaced gold, the US debt became the attention worldwide, thus the demand for the US dollar continued, furthermore the extremely low interest of the dollar. This helped the US government to borrow great amounts of debt as well as kept the creditors pleased. Due to the pandemic, the US economy retrograded because of the tax cut and unproductive rescue spending plan plus surpassing spending of the government. The rising inflation starts to increase to high levels, which certainly the government must cut back spending or its patterns, while this will lead to uncertain consequences for the long future. This paper discusses several different perspectives on the US government's sustainability as its ability to settle the debt in future, the fate of growth burdened with that debt through the neoclassical mode of growth, and also the effect of anxiety of defaults and unfunded obligations. Inversely, it explores the strength of the dollar with a low-interest rate and its sustainability worldwide. We also propose ways helping of strengthen the fiscal government position and solutions to help the economy recover in long term and to easiest the situation. In the synopsis, we propose something that could affect and shake the global market.
A Role For Defined Contribution Plans In The Public SectorClaire Webber
This summary provides an overview of a document that discusses the roles of defined benefit and defined contribution plans in the public sector. The document is a research brief from the Center for Retirement Research at Boston College. It begins with an introduction discussing the recent adoption of hybrid plans combining defined benefit and defined contribution elements in Georgia, Michigan, and Utah. It then covers the risks and costs of defined benefit versus defined contribution plans. The next section discusses pre-2008 defined contribution activity in some states. It follows with descriptions of the new hybrid plans adopted in Georgia, Michigan, and Utah. The document concludes that defined contribution plans have a role to supplement, not replace, defined benefit plans in the public sector.
The document discusses India's Fiscal Responsibility and Budget Management Act of 2003. It provides background on fiscal responsibility and defines key fiscal terms like fiscal deficit, revenue deficit, primary deficit, and gross fiscal deficit. It outlines the objectives of the Act, which were to increase fiscal transparency, introduce sustainable debt management, and aim for long-term fiscal stability. It also discusses the impact of fiscal policy on issues like inflation, economic growth, and farmers' suicides. Current implementation of the Act aims to gradually reduce the fiscal deficit target to around 2-3% of GDP.
Similar to Shortcomings Of Government Financial Management A Generational Accounting Critique (20)
El orador cierra la conferencia agradeciendo a los participantes y expertos por compartir su conocimiento durante los últimos tres días. Resalta que a pesar de terminar la conferencia, el conocimiento adquirido perdurará y ayudará a impulsar el progreso en los países representados. Finalmente, agradece a los patrocinadores y organizadores por hacer posible este evento, y desea un buen viaje a todos los asistentes.
The speaker closes out the three-day conference by thanking the participants and emphasizing the importance of continuing to promote transparency, accountability, and good governance when returning home. Key principles discussed at the conference such as these form the foundation of strong public financial management and help inspire public trust. With over 100 representatives from around the globe in attendance, the knowledge shared has great potential impact, and the speaker hopes participants will continue the discussion with colleagues.
Este documento resume tres proyectos que buscan mejorar la movilización de recursos nacionales en Afganistán, Vietnam y Túnez. En Afganistán, el proyecto ATAR está automatizando los procedimientos aduaneros, gestionando el riesgo y estableciendo estándares de auditoría y conducta. En Vietnam, el proyecto GIG está promoviendo altos estándares en las compras públicas. Y en Túnez, el proyecto TCP está apoyando la reforma fiscal a través del análisis de políticas.
This document summarizes presentations from three USAID-funded projects working to improve domestic resource mobilization:
1) The Afghanistan Trade and Revenue Project is working to modernize customs procedures through electronic payments, risk-based inspections, internal audits, and professional standards to increase revenue collection.
2) The Vietnam Governance for Inclusive Growth Project is promoting high procurement standards to comply with trade agreements and strengthen transparency, including revising laws, training officials, and expanding e-procurement.
3) The Tunisia Tax and Customs Reform Activity used modeling and analysis to develop reforms simplifying taxes and customs duties that were included in the 2016 Finance Law, and it aims to establish a Fiscal Analysis Unit to
Institutional transparency is key to preventing corruption. When corporate records, court documents, government procurement records, and media are publicly accessible online, it allows companies to thoroughly research potential partners and identify "red flags" like obscure ownership structures, corruption allegations, or ties to government officials. However, transparency varies greatly between countries and even within countries. In Brazil, for example, corporate records availability ranges from comprehensive online databases to only being available on-site for a fee. Where transparency is lacking, it constrains the private sector's ability to conduct proper due diligence and avoid corrupt partners and transactions.
This document summarizes a political scientist's perspective on corruption from an international conference on governmental financial management. It discusses how corruption is correlated with levels of economic development, political institutions, economic rents, bureaucratic and political incentives, taxation systems, customs agencies, and budget management processes. Potential solutions are outlined like reforming laws and procedures, increasing transparency, oversight, and technology, and strengthening institutions.
The document discusses how capturing illicit financial flows can help fund achieving the UN's Sustainable Development Goals. It notes that $1 trillion in illicit capital leaves developing countries annually, contributing to an estimated $2.5 trillion annual funding gap for the Goals. While political will exists to reduce these flows, misinvoiced trade accounts for $878 billion per year. The document introduces a Trade Misinvoicing Assessment System (TMAS) that analyzes pricing data to help customs officials identify misinvoiced goods shipments, which could help capture more revenue domestically and close the funding gap.
This document discusses how natural resources are embedded within many of the UN's Sustainable Development Goals (SDGs) and how corruption is often linked to countries that rely heavily on natural resource exports. It notes that while there is no standalone "natural resources" SDG, natural resources relate to goals around ending poverty, achieving food security, access to clean water and affordable energy, sustainable economic growth, reducing inequality, sustainable consumption and production, climate action, and more. It then outlines how corruption is more common in countries with weak institutions that rely on natural resource exports, especially oil, and explains some of the political and economic factors that can contribute to this "resource curse". The document concludes by noting increased calls for transparency and accountability in
La iniciativa de Addis Ababa busca que los países recauden más fondos domésticos para alcanzar los Objetivos de Desarrollo Sostenible. Desde la conferencia de Addis Ababa en 2015, varios países y organizaciones han trabajado para mejorar la recaudación de impuestos domésticos, como Rwanda que se unió a la iniciativa y Afganistán que comenzó un programa de recaudación de impuestos domésticos. Otras áreas de enfoque incluyen la erosión de la base imponible y la transferencia de beneficios
The document summarizes the Addis Tax Initiative agreed upon at the Third International Conference on Financing for Development. The initiative is a partnership to improve domestic resource mobilization by encouraging donors to increase funding for tax systems and developing countries to raise tax revenues to fund development goals. Several countries and organizations have signed on to the initiative and some progress has been made through diagnostic tools and programs in countries like Rwanda and Afghanistan. Other related efforts on base erosion, tax incentives, and private sector participation are also discussed.
El ICGFM es una comunidad internacional fundada en 1978 dedicada a mejorar la gestión de finanzas públicas. Reúne a líderes y practicantes de finanzas gubernamentales de todos los niveles para promover el intercambio de mejores prácticas. Ofrece conferencias, publicaciones y certificaciones para apoyar el desarrollo profesional continuo de sus miembros individuales y organizacionales.
The International Consortium on Governmental Financial Management (ICGFM) is a non-profit founded in 1978 that brings together leaders and practitioners in public financial management from local, state/provincial, and national governments. It facilitates sharing best practices and thought leadership in PFM through biannual conferences, an international journal, surveys, and a speaker series. Membership includes sustaining organizations, organizational members like governments and non-profits, and individual practitioners and specialists.
1) El documento analiza las formas de asistencia estatal y apoyo presupuestario a la economía de Ucrania, incluidos subsidios, exenciones impositivas, garantías estatales y proyectos de inversión.
2) Se describe la Ley de Ucrania sobre la asistencia estatal a entidades comerciales, que establece criterios para evaluar diferentes categorías de asistencia como apoyo a PYMEs, capacitación laboral y desarrollo regional.
3) Los datos muestran que entre 2011-2014, los subsidios y
This document discusses Ukraine's tax reform efforts to support economic development. Key measures of the 2014 tax reform focused on increasing budget revenues through expanding excise taxes and property taxes. Rates for corporate and personal income taxes were also increased. However, the reform also aimed to enhance entrepreneurship by reducing some tax benefits and making the tax system more transparent and efficient to improve the business climate. Overall, the tax changes helped address fiscal consolidation but further reforms are still needed to minimize taxes' negative impact on growth and bring more business out of the shadow economy.
The document summarizes the fiscal policies and transparency initiatives of the Cordoba Province government in Argentina. It discusses efforts to improve transparency through legal reforms, quality management systems, and new technologies. Key policies and programs include joining the Fiscal Responsibility Regime in 2004, passing the Financial Administration Law in 2003, creating regulatory compendiums, and adopting Resolution 364/09 to establish transparency policies. The province also publishes information through its transparency portal, citizen budget, audits, and sustainability reports to encourage public participation in fiscal management.
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Shortcomings Of Government Financial Management A Generational Accounting Critique
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Paul J M Klumpes - p.klumpes@imperial.ac.uk
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This paper examines the inter-generational financial dimensions and accounting
implications of under-funding practices in the public sector. We explain why inter-
generational financial disclosure has become such an urgent issue internationally, and
discuss a generational accounting framework for calculating the necessary financial
information to reveal the inequities and resource allocation problems afflicting public
sector organizations. The main limitations, assumptions and applications of a
generational approach to analyse the financial sustainability of public sector enterprises
are briefly discussed.
Keywords: Generational accounting, public sector under funding practices
JEL Classifications: M41, L31, J18, and H55
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The public sector commands a substantial proportion of any nation’s total capital investment.
However, unlike privately funded organizations, public sector organizations are typically under-
funded in the sense that the government fails to pay the necessary contributions as they fall due.
Moreover, the increasing importance of government and other public sector entities in providing
either explicit or implicit insurance guarantees for pensions, social security and health care
programs, which involve inter-temporal investment and consumption commitments, has
significantly reduced the relevance and reliability of traditional financial statements, that are
based on accrual-based accounting. This is because, under accrual-based accounting principles,
the recognition and payment of their obligations related to various social programs and welfare
services is effectively deferred until the relevant entitlement must be paid, which has important
implications for general taxpayers who ultimately bear the cost of employer contributions
towards government insurance programs. Thus, the liability created by population ageing and the
associated under-funding shifts responsibility for payment away from the present generation of
taxpayers onto future generations who must make up the funding shortfall as the benefits actually
fall due. This effectively forces future generations of contributors or taxpayers to bear the burden
of funding the retirement benefits of previous generations of beneficiaries. Under-funded
government liabilities for public sector obligations constitutes a major expenditure in the
management of social programs in many countries, but to date has not attracted much attention
from accountants as it does not easily fit within an accrual-based accounting system, despite the
recession causing many governments to further postpone their future obligations. Existing or
proposed international standards continue to assume that obligations are only accountable if the
service has already been provided and/or that the amount measured is limited to a ‘curtailment’
valuation. However, these standards, while applicable to private sector, may not apply to the
public sector where governments are expected to make a continuing and ongoing commitment for
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2. the future welfare and provision of health care, social security, pensions and other insurance-
related commitments. The OECD has recently issued calls for greater disclosure of liabilities and
contingent obligations (OECD, 2004, IMF 2009).
Given that behavioral persistence of under-funding practices of most insurance-related guarantee
programs is typical of many OECD countries, a major unresolved accounting issue is their
generational implications for affected stakeholders. However it is not at all clear that this form
of inter-generational equity is a concern of governments. Under the Westminster Principle of
government, governments are only accountable for, and elected on, the basis of policies during
the elected term of their office. These principles can in turn induce governments of cash-
strapped economies to take myopic views. For instance, the UK government recently
consolidated the assets of a publicly unfunded pension scheme (Royal Mail), but argued that it
was not required to be accountable for the obligations (e.g. Financial Times, 9 May 2009).
Moreover, prior researchers have only tended to focus on the accrual accounting aspects of
public sector under-funding practices. For example, Marks et al. (1988), Mitchell and Smith
(1994) and Chaney et al. (1997) examine the determinants of pension funding in the US public
sector by reference to short-term, legalistic measures of the obligations and assets.
However, while concluding that past under-funding practices are likely to continue in the future,
prior USA-based researchers have not examined their inter-generational equity implications.
This is because relevant US GAAP, as promulgated by the Government Accounting Standards
Board (‘GASB’) requires, in accordance with accrual-based accounting principles, USA
government insurance programs to recognise the periodic difference between the market value of
pension fund assets and the under-funded element of the equivalent pension fund obligation
(GASB, 1994, Para 22). However, recently the Federal Advisory Standards Accounting Board
proposed amending this to allow for recognition at the point where the benefit is acquired rather
than at the point where it is payable (FASAB, 2006). This is consistent with a lifecycle approach
to investment and finance (Bodie, 2006). Only the US federal government has proposed the
introduction of a ‘Statement of Social Insurance for Social Security’, which effective in 2007,
will show forecast information for the present value of future benefit payments and future
contributions, and the net actuarial imbalance in 75 years (FASAB, 2006, IPSAS 2005).
However, the information does not extend to recognizing the ‘inter-generational liability’, nor
does it articulate with the overall reported funding position of the US federal government. In
addition, governments provide financial guarantees or insurance policies that oblige the
government to make promised payments on a financial contract if the issuer fails to do so (Bodie
and Merton, 1992). An example of such a guarantee is the Pension Benefit Guaranty
Corporation. These guarantees are potentially valuable for the third party, and moral hazard
behavior for under-funded pension obligations can lead to significant exposure by the
government that is not currently recognised.
This paper proposes a generational accounting framework that is consistent with a life cycle
perspective on the financial management of under-funded public sector liabilities. Generational
accounting was motivated by the claim that the measured public deficit need bear no
relationship to the underlying inter-generational stance of fiscal policy, and the tendency of
governments to use short-term budget deficits as an instrument for long-term planning by
excluding social security from the deficit (Kotlikoff, 1986, 1992, 1993). Auerbach, Gokhale and
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3. Kotlikoff (1991) developed generational accounting, which is a method for estimating the
economic impact of fiscal policy on different cohorts – including future ones – as distinguished
by birth year and gender (Gokhale, 2009). However as generational accounting is also based on
a prospective per capita life time net tax burden faced by different cohorts, it also presents a
number of challenges for implementation in financial management contexts. This article first
discusses the background, then summarises the major features of generational accounting, its
applications, and identifies its limiting assumptions and potential applications, and finally
discusses its policy implications.
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In many countries, unlike the private sector, public sector insurance-related program activities
are typically under-funded since the relevant program may either be totally unfunded or involve
specified assets that at any particular time may not cover the equivalent liabilities for which the
fund is responsible
The under-funding generally arises in two ways (Mitchell and Smith, 1994). One method is to
adopt unrealistic assumptions that reduce legally required contributions. For example the spread
between the assumed rate of return on investments and the rate of assumed wage growth
determines, in effect, the real discount rate applied to future liabilities. The other major form of
under-funding arises because governments do not pay their contributions into the fund as they
fall due. This practice, consistent with the behavioral persistence hypothesis, effectively shifts
the burden for payment of present generations of workers onto future generations of taxpayers,
who meet the shortfall because the government effectively pays benefits out of their (annual)
contributions to the general revenue fund, including the net effect.
The continuation of this fiscal policy makes it doubtful whether future tax revenues will be
sufficient to secure their obligations in many OECD countries (World Bank, 1994; Roseveare et
al., 1996). Ageing populations in many countries (including Australia) imply an unreported tax
burden on future generations. This is because, contrary to government accounting conventions,
they must bear the burden of funding their own pension benefits as well as paying off
accumulated deficits for the benefits of previous (and larger) generations of workers.
The non-payment or under-payment of contributions by governments result in various insurance-
related programs totally unfunded, and thus represents a major form of public borrowing against
the future. Continuation of past practices in government fiscal policy of under-funding public
sector pensions may adversely affect future revenue-raising potentials of governments. It also
puts at risk the income security of public sector retirees, which is critically affected by under-
funding policies. Further, since the public sector workforce is maturing along with the rest of the
population, these under-funding practices take on increasing importance as time passes (Mitchell
and Smith, 1994). These practices have significant inter-generational financial consequences for
at least three groups of stakeholders – present and future taxpayers, beneficiaries, and
government policy makers. Thus, the demand for evaluating inter-generational effects of
government policies is very important. However, although now used extensively by macro-
economic policy makers, the application of these concepts to financial reporting by government
and public sector entities has been largely overlooked.
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4. At the whole of government or public sector reporting entity level, there is still a lack of financial
disclosure in government financial reports that will allow users to make judgments about (i) the
extent of aggregate under-funding, (ii) the implicit taxation burden placed on future generations
and (iii) implications for inter-generational equity issues, despite OECD recommendations
(Kotlikoff and Burns, 2004). Current deficit/surplus type government reporting conveys little
information about the generational taxation consequences that arise from under-funding practices
(Kotlikoff, 1993). The deficiency persists at whole of government financial reporting levels,
despite the replacement of cash based accounting with accrual accounting conventions as the
preferred model for government accounting in Australia. The accrual measures used in current
reporting requirements continue to reflect a ‘stock’ view of the world at a point in time, rather
than a ‘flow of required obligations’ perspective (Auerbach et al., 1991, 1992; Mitchell and
Smith, 1994).
There are also limitations associated with relying on a single ‘stock’ funding ratio to assess the
financial condition of government insurance programs. First, under-funding policy is dynamic
and cannot be described by a short-term measure that entirely ignores its likely future
consequences. Second, a single measure cannot identify the inter-generational distribution of the
burden of fiscal pressure at any given time (Auerbach et al., 1994). Without dealing with these
issues it is impossible to identify how the burden of fiscal pressure is distributed across
generations, information often demanded by users of government financial reporting (e.g.:
Henke, 1987; DioGuardi, 1995). Indeed, Copley et al. (1997) conclude that there is little reason
to expect accrual-based accounting reforms to increase the citizen use of government financial
reports.
The need for supplementary disclosure to reveal inter-generational aspects of government
financial management policies is gaining recognition with public sector accounting standard
setters. According to the GASB’s Statement of Objectives of Government Financial Reporting
(GASB, 1987, Para 2), financial statements need to report on inter-period equity as a key element
in demonstrating accountability in the government context. This view implies that public under-
funding is undesirable and perceives financial reporting as a monitoring mechanism in promoting
inter-period equity (Marks et al., 1988).
Under deficit/surplus accounting, governments sum up current period total dollar outlays and
revenues of all kinds and express the difference between these as a ‘deficit’ or ‘surplus’. This
form of accounting has resulted in public employee pension system borrowing being kept ‘off
the books’ at the whole of government level (Mitchell and Smith, 1994).
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This section overviews the basic concepts related to financial and generational sensitivity of
unfunded government programs related to social security, pensions and health care obligations.
We first define the key concepts of financial and generational sustainability. We then briefly
discuss the relative merits of this approach.
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Studies of generational accounting generally assume either economic assumptions and models or
use accrual accounting as a baseline to develop generational accounts. Klumpes (2000) examines
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5. the generational accountability of the management of Australia’s largest public sector entity.
Klumpes (2001) examines the financial accountability of Australia’s Medicare system. Klumpes
(2003b) measures the obligations of six European governments to unfunded pay-as-you-go
pension systems. Klumpes and McCrae and Tang (2005) examine the extent of pension under-
funding in the Australian public sector. Klumpes and Tang (2008) examine the cost incidence of
the NHS in the UK using a generational accounting analysis.
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Topic Authors Context Major findings
Pension Klumpes Analyzes the evolution of Scheme has evolved from public to
underfunding by (2001) funding patterns of the private sector. The impact of
State State of New South political visibility on the
governments Wales Superannuation generational accountability of the
scheme from 1995-2004. SASB is examined over time.
Klumpes, Project the burden of The demographic trends imply a
McCrae under-funded government serious imbalance in equity across
and Tang employer pension existing and future generations.
(2005) obligations to three Relative to accrual-based reporting
generational cohorts of practices, a statement of inter-
public sector employees, generational equity provides
based on a data set additional insights into the
describing flow of generational visibility of public
funding characteristics of pension funds. Underfunding
12 federal, state and local practices concerning hidden public
Australian government pension obligations across the EU
funds. vary considerably across
governments
Unfunded Klumpes Analyze funding of Australian Medicare is significantly
health care (2001) Australian Medicare underfunded and is financed by
systems system future generations.
Klumpes Analyzes cost incidence A combination of fiscal and
and Tang of UK NHS system generational imbalances largely
(2008) explains the underfunding of the
NHS. Data are taken from both
historical trends in expenditure and
ageing as well as projected
demographics. The analysis implies
that there is significant inter-
generational-inequity in the funding
of NHS.UK NHS is significantly
underfunded
Unfunded social Klumpes Hidden obligations of EU EU states have significant
security systems (2003a) states variations in the level and extent of
underfunding
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6. Klumpes Determinants of social Variations in behavioral patterns
(2003b) security underfunding in across continental European and
the OECD Anglo-American countries in the
underfunding of public pensions
Pension Tang and Nature of sharing of The simulation analysis identifies
underfunding by Klumpes unfunded pension the dimensions of inter-generational
government- (2009) obligations by Chinese transfer with important implications
private SOEs for financial reporting by SOEs to
enterprises affected shareholders. A
underfunding re-distribution rule is
designed to investigate these
implications.
However, all of these studies rely on accrual-accounting as the baseline, whereas other studies
(e.g. Gokhale and Smetters, 2003, 2006; Gokhale, 2008) use economic models. Thus there is an
inconsistency in models across these studies. Gokhale and Smetters (2003) introduce the concept
of ‘fiscal imbalance’, which adds to a government entity’s current accounting-based liabilities
the present value of the difference between all projected non-interest spending and all projected
revenue. Following their approach, any government or public sector entity insurance-related
guarantee program may be considered to be financially sustainable if today’s publicly held debt
plus the present value of projected non-interest spending and the present value of projected non-
interest spending is equal to the present value of projected government receipts. The spending
and revenue projections are made under current policies. ‘Present values’ mean that amounts
paid or received in relation to a government insurance guaranty program throughout the future
are discounted at the long-term gilt yield in order to reflect their true value today. A financially
sustainable policy can be sustained without changing either outlays or revenues. Hence a
financially sustainable measure as of the end of year t is defined as (Gokhale and Smetter, 2003,
8):
FIt = PVEt – PVRt – At (1)
This definition is the excess of total expenditures over available resources in present value. PVEt
is the present value of projected expenditures under current policies at the end of period t. PVRt
is the present value of projected receipts under current policies, and At is assets in hand at the
end of period t.
For government insurance program funding policy to be financially sustainable, its FI must be
zero. The government cannot spend and owe more than it will receive as revenue in present
value. If the FI measured under current policies is positive, those policies are unsustainable and
policymakers will have to change them at some future point in time.
However the FI measure is not capable of providing the financial impact of all possible policy
changes. This is because, any new policy that changes projected expenditures and revenues so
that their increments are exactly equal in present value will provide offsetting increases in PVEt
and/or PVRt, leaving FI unchanged. However, such FI-neutral policies could transfer net tax
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7. burden from living to future generations. Thus a complementary measure is needed to show
such redistributions of financial burdens. The FI measure exclusively reflects the sustainability
of a given policy, but another measure is needed to indicate how FI is distributed across
population subgroups. Another measure is needed to indicate how much of the FI arises from
older generations shifting tax burdens to younger (including yet unborn) generations. Gokhale
and Smetters (2003) define this as the ‘generational imbalance’ (‘GI’):
GIt = PVELt – PVRLt – At (2)
PVELt represents the present value of projected outlays that will be paid to current generations.
PVRLt represents the present value of projected tax revenues from the same generations. At
represents the insurance program’s current assets. Therefore GI captures that part of FI arising
from all transactions with past and living generations throughout their lifetimes. The projected
contribution to FI by future generations equals the difference between FI and GI.
While the FI measure captures many large unfunded payment obligations not included in
traditional accounting perspectives on government insurance programs, the GI measure captures
the redistributive effect of alternative policies. Under a pay-as-you-go financed government
insurance program funding policy, the GI measure increases even though FI does not change.
This implies that the imbalance on account of future generations decreases. It also suggests that
policymakers must achieve two objectives simultaneously; first, reduce the FI to zero. Second,
choose a policy that delivers the best trade-off in costs imposed on different generations.
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The above institutional review suggests that in recent years, public sector accounting has
increasingly utilized the accounting techniques and practices of the private sector through the
greater reliance on accruals-based principles. Thus it is not surprising that concepts such as
‘cost’, ‘efficiency’, ‘economy’ and ‘effectiveness’ have entered into political discourse on the
accountability of the public sector during this time. However a much neglected alternative line
of economic reasoning argues instead that it is necessary to consider the impact of government
policies across generations.
The currently implemented accrual-accounting principles assume that the primary focus and
objective of financial reporting concerns the stewardship or custody of existing resources of
public enterprises. By contrast, the FI/GI framework implies that the efficient and equitable
management of government public finances involve a broader objective of achieving inter-
generational altruism and therefore implies a form of ‘implicit social contracts or inter-
generational trusteeship’. The same argument applies to public sector organizations, which are
typically under-funded relative to private organizations as governments who guarantee their
services fail to pay all necessary contributions as they fall due. Specifically, obligations related
to various benefits, such as pensions, are deferred until the entitlement must be paid. Current
taxpayers, although benefiting from the services provided by contemporary public sector, are
not paying the full cost of them, as the cost of the benefit payments being accrued are postponed
to a time when existing contributors will have retired. The cost of these benefits will instead be
borne by future taxpayers, who will not have benefited from services provided by today’s public
sector workforce. Of course this would not matter if the composition of the population was
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8. unchanging. The problem arises because, in all industrialized countries a combination of falling
birth rates and increasing longevity means that progressively fewer workers will be supporting
each public sector retiree. The result is that future generations of taxpayers will be forced to bear
the growing burden of funding the retirement benefits of previous generations of beneficiaries.
Relative to accrual-based accounting principles, we consider that the FI/GI framework
perspective serves a broader objective in reporting on inter-generational equity. It also addresses
Copley et al.’s (1997) concerns about the decision usefulness to the citizenry of the application
of accrual-based accounting to the public sector, by providing information relevant to a broader
users’ constituency of both current and future generations of taxpayers. Finally, we believe that
a FI/GI framework is applicable to government insurance programs by recognizing explicitly
those items that are required to bring an entity into generational balance. The FI/GI framework
indicates the zero-sum nature of insurance related guarantee programs policy in the public
sector, when viewed from an inter-generational perspective. Table 2 summarizes the major
conceptual differences between accrual-based accounting and the FI/GI framework. An intuitive
explanation is provided, below.
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Conceptual Accrual-based Perspective Generational-based Perspective
Framework
Objective Report on inter-period equity Provide information about inter-
(GASB, p. 22) generational equity (AAS 31, p. 10)
Intended Users Present and potential taxpayers Current and future generations of
taxpayers
Recognition For each entity, revenues when For each generation, net payments and
Criteria earned and expenses when receipts over lifetime
related good or service used
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In this section, we consider the relative benefits and costs of implementing generational
accounts to an accrual system of accounts for acquitting inter-generational equity. From a
conceptual perspective, Gokhale and Smetters (2003) argue that any government accounts
concerning policies or commitments that involve inter-generational contracts should possess a
number of desirable characteristics. The first is that they are forward-looking. Adopting new
forward-looking performance measures would reveal a very different and more accurate picture
of the government program’s financial status, as well as the size and nature of the needed policy
adjustments.
A second desirable feature of a proper measure is that it should include all future years, i.e.
calculated in perpetuity. By contrast, accrual-based accounting estimates do not completely
account for the financial imbalances because of the arbitrary truncation of the projection
horizon. If deficits beyond the forecast horizon are large and growing, then annuity-based
estimates will severely understate the full magnitude of the financial sustainability of such
programmes.
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9. Gokhale and Smetters (2003, 19) argue that a third desirable feature of a financial measure is
that it be complete – i.e. it should encompass the entire operations of the entity. Since most
government entities operate to provide society with some form of either implicit or explicit
insurance against risk, it is not at all clear that accrual-based accounting principles capture these
contingencies given the standard accounting convention that any measured event can only arise
from past transactions.
A fourth desirable property is that that the measure should be based on current policy. For a
proposed measure to be useful, it must characterize current policy. By contrast, accrual
accounting adopts a ‘shutdown’ liability measure because it effectively assumes that the entity
will not be in existence in future years, and therefore does not include future expected
expenditures. By contrast, it is reasonable to assume that governments have the power to amend
policies, e.g. taxes, expenditure.
A fifth criteria argued by Gokhale and Smetters (2003) is that the measure should correctly
reflect the impact of all policy changes. This includes the fact that the measure should not
change when policy changes are actuarially neutral for all generations. It must also accurately
reflect all actuarially non-neutral policies. By contrast, a standard assumption underlying the
accrual system of accounting means that revenues and expenses are recognised only at the time
that the sales are made and the input used, etc., and not when the monetary consequences of
such actions occur.
Finally, the sixth desirable feature argued by Gokhale and Smetters (2003, 20) is that the
measure should be conceptually straightforward and possess properties that are easy to
communicate. Under accrual accounting, the definition of an event is defined primarily by the
time period in which a transaction occurs, e.g. the correct measurement of the effect of a sale
requires that both the revenue (sale) and its associated expense (Cost of Goods Sold, COGS)
should be recognised simultaneously (i.e. matched). By contrast, the generational accounting
measure allows for a separation between the time when an item is recognised and the time when
the service is acquitted. For example, health care, pensions and social security obligations arise
whenever a citizen becomes entitled to that service, and grows over time at the rate of interest.
Hence a change in the measure from one year to the next can be broken down into the amounts
due to accumulated interest, policy changes, differences in economic outcomes relative to
projections, and updates to economic assumptions used in making budget projections. The
generational accounting measure is also simple because it equals the amount of fiscal imbalance
that is due to current and past generations. However, other complementary measures could also
be used, including ones that describe imbalances by narrowly defined birth cohorts, gender, rates
and so on.
On the other hand, Gokhale (2009) identifies a number of criticisms of generational accounts.
First, it measures the net costs of taxes and transfers but excludes the indirect benefits derived
from government public goods and service purchase. If the benefits from government
transactions accrue much later, then the average generational account facing future generations
may not accurately reflect their treatment under current policies. Similar criticisms can be
leveled at accrual accounting. In fact, the conservatism principle is intended to safeguard against
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10. the natural tendency for ‘over optimism’ in presenting profit. We must recognise revenues only
when they are certain (i.e. actual sales, not advance orders or advance receipts). On the other
hand, we should be careful not to understate expenses (which would also cause profits to be too
high). However from a government perspective, such principles may end up hindering rather
than enhancing accountability, where the affected resources have implications for future use
beyond the current horizon.
A second major criticism of generational accounting is that it does not factor in the costs and
benefits from government insurance provision. However, Gokhale also cites other dynamic
simulation studies which imply that generational accounts correspond reasonably well to welfare
gains and losses arising from policy changes. By contrast, government guarantees have only
very recently been subject to any attention by accrual-based accounting standards, and in any
case are mostly generally regarded as ‘contingent events’, and therefore not certain in amount to
be recognised on the balance sheet.
Gokhale (2009) notes a third major criticism of generational accounting, that it ignores economic
responses when estimating policy adjustments for restoring generational balance. On the other
hand, Gokhale (2009) also acknowledges that its ‘static’ estimates probably constitute a ‘lower
bound of required adjustments’. By contrast, accrual-based accounts only account for efforts that
are ‘realised’. For instance, consistent with private sector accounting practices, when a
government entity makes a sale on credit, it cannot be sure that the cash value will ever be
realised. So it is normal to set off a provision for bad debts against the debtors to reduce the net
value of the asset, by allowing for a degree of non-payment by customers. Yet similar
considerations cannot be applied to ‘future events’ e.g. ‘provisions’ cannot be made for future
events.
A fourth limitation of generational accounts is that it employs a hypothetical policy for future
generations. By contrast, current budgetary constraints mean that many government and public
sector enterprises wish to measure the effects of keeping their policies unchanged. Gokhale and
Smetters (2003) solve this issue and develop alternative fiscal and generational imbalance
measures that do not involve hypothetical policies.
A fifth limitation of generational accounting is that it discounts future flows using a common
discount rate whereas taxes and transfers may well be subject to different degrees of policy
and/or economic uncertainties. Related, it may be appropriate to use different discount rates for
different cohorts because they face different risks. To the extent that the discount rate is of
concern, Gokhale (2009) notes that generational accounting studies often include sensitivity
analysis under alternative assumptions, including alternative discount rates. By contrast, accrual-
based accounts are only based on a specific set of actuarial assumptions; and it is generally left to
the reader to interpolate how a change in assumption or policy might affect the reported
numbers.
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We propose a FI/GI framework approach developed by Gokhale and Smetters (2003) to provide
a basis for sustainable financial management of the public sector insurance-related guarantee
programs. The framework is shown to be more consistent with a life cycle perspective on public
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11. sector investing and finance principles. We argue that the FI/GI approach is more applicable
than existing accrual-based accounting systems to better understanding government funding
policies and guarantee programs. In addition to enhancing transparency and accountability, it
also provides a number of unique insights into the financial dimensions and accountability
implications of insurance guarantee programs. We believe that disclosing this type of present-
value based information can significantly extend the nature and scope of financial accountability
of under-funded public sector funds to a broad set of stakeholders and thereby provide a useful
supplement to current-value financial statements based on accrual-accounting principles. Such a
framework is potentially applicable to a broader range of public sector entities whose liabilities
and/or capital funding is subject to the effects of demographic transition (e.g. pay-as-you-go
funded social security and health care schemes).
At a conceptual level, the framework that we propose questions the appropriateness of current,
standard conventions of public sector accounting and accountability that are framed by reference
to accrual-based accounting principles (e.g. Funnell and Cooper, 1999). Accordingly, we fully
expect that the FI/GI framework will attract controversy and criticism from the broader
professional and academic accounting and management communities for a number of reasons.
First, whereas accrual-based accounting principles imply a current or market-value basis of
measuring a public sector entity’s existing assets obligations, generational accounting
methodology implies instead a measurement system that is based entirely on ex ante
information. This is because generational accounting is based on the annual estimates of lifetime
cash contributions of each cohort to an entity, less the estimates of lifetime benefits receivable
by them, all suitably discounted to their present values. Consequently, the calculations are not
based on verifiable value but are based on far-reaching assumptions of life expectancy, incomes,
economic growth, inflation and productivity. While many view market values as a de rigueur
component of both the theory and practice of accounting measurement, present values are still
viewed by many academics and professionals as being the province of actuarial science and
economics.
A more fundamental criticism of generational accounting from a traditional accounting
viewpoint concerns the fact that values of public fund net worth derived under each system have
significantly different decision-making implications. A zero net value for a pension fund under
accrual-based accounting principles implies that a public fund is just meeting its obligations.
Thus, accrual-based accounting principles provide a basis for determining the fund’s overall net
worth in terms of its aggregated assets and liabilities based on past funding policies. By contrast,
a zero net present value of net contributions indicates that each generational cohort is just paying
its way. Generational accounting models thus provide a basis for judging whether the
continuation of current policies involves a prospective inter-generational redistribution of
pension fund net worth. This emphasis on the stakeholder implications of the under-funding of
public sector obligations contrasts with standard notions of public sector under-funding
practices. For instance, the GASB standard identifies efficiency and effectiveness in the use of
existing resources as the primary objective of financial reporting, rather than asking whether
their mode of financing is equitable to participants and other stakeholders (Marks et. al., 1988).
These criticisms bear upon the wider academic debate as to whether equivalent accounting
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12. principles should apply to both the private and public sector (e.g. Barton, 1999a). Indeed the
public sector increasingly is utilizing the accounting of the private sector. Thus cost, efficiency,
economy and effectiveness have entered into political discourse. By contrast, generational
accounting implies that a different form of accountability applies to the public sector, at least for
certain types of entity whose resources involve the allocation of risk among various generational
cohorts of participants.
There are at least three major policy implications. First, the FI/GI framework implies a serious
imbalance in equity which reflects the combination of the explicit liability to service very large
amounts of public spending and the implicit liability to pay substantial sums to existing and
future generations of public welfare beneficiaries. Second, our analysis raises serious questions
over the differential ability of levels of governments to maintain inter-generational equity in
their under-funded public sector services. Third, the FI/GI framework can apply to other
demographic and inter-generational equity sensitive public policy settings, such as environment,
long-term health care and the valuation of infrastructure. They can also be applied to other
private sector entities with inter-generational long-term insurance related obligations, such as
unfunded pension funds and health care obligations.
5HIHUHQFHV
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