Generational Accounting: A New Approach to Understanding the Effects of Fiscal Policy on Saving

An alternative to deficit accounting is proposed for understanding the government's treatment of current and future generations. The alternative, called generational accounting, is based on the government's intertemporal budget constraint. Generational accounting is used to describe the redistributive and saving impacts of four alternative policies. The findings indicate that the fiscal deficit is thoroughly unreliable as a measure of either generational policy or the policy-induced stimulus to aggregate demand. The findings also suggest that fiscal policies that redistribute across generations can have important effects on national saving rates.