Business, Legal & Accounting Glossary
Generational accounting is a kind of accounting method. It studies how the present fiscal policies of a country affect its coming generations. Pioneers in the field of generational accounting include names like Laurence Kotlikoff, Jagadeesh Gokhalea and Alan Auerbach. It analyzes government spending components and tax programs with a view to determine whether benefit accruing to present generation is leading to any unfair tax burden for future generations of a country. Generational accounting is carried out with a view to attaining generational balance. Generational balance is maintained when present and future generations of a country face equivalent ‘lifetime net tax rates’. Fulfilment of this condition is a prerequisite for the maintenance of a nation’s fiscal sustainability. This implies that a country’s fiscal policy and tax programs need to be fine-tuned for attaining the goal of fiscal sustainability. Idea is to avoid tax imposition without representation. For instance, expenditure on retirement programs for senior citizens has to be funded by younger generations. Generational accounting aims at the elimination of government policies, which adversely affect the interest of future generations.
Experts have pointed out some drawbacks of generational accounting as a policy analytical tool. Some of them are mentioned below.
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This glossary post was last updated: 27th March, 2020 | 0 Views.