January 1, 1997

Generational accounts for the Dutch public sector

After 2010 the aging of the population will start to form a sizable burden for public finances. However, some shifts in the private sector, such as an increase of labor-force participation, are expected to generate higher tax revenues.

These contrasting developments raise the question whether the present system of public arrangements is sustainable in the long run or will, on balance, result in an unfavorable treatment of future generations.

This paper, which assigns net public sector benefits to generations, indicates that the present arrangements are unsustainable if these arrangements are indexed to productivity growth. However, the required policy adjustment is quite small. Since the alleviating factors will occur before the bulk of the aging occurs, implementing a sustainable system does imply a sharp reduction of the fiscal deficit in the coming decades.

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