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The sustainability of Scottish public finances: a Generational Accounting approach

Author

Listed:
  • Katerina Lisenkova
  • Miguel Sanchez-Martinez
  • James Sefton

Abstract

This paper analyses the long-term sustainability and intergenerational equity of the Scottish public finances by employing a generational accounting model. This represents a novel approach to analysing these issues in the case of Scotland, while having the advantage of capturing policy-relevant intergenerational aspects. We find that, under the baseline scenario, assuming that Scotland has “full fiscal autonomy”, large intertemporal and intergenerational fiscal gaps open up. The three main reasons behind this result are: declining North Sea revenues, a budget deficit at the beginning of the simulation period and a widening gap over time primarily due to population ageing. The model suggests that both the intertemporal fiscal and generational imbalances can be addressed via a permanent increase in taxes equivalent to about 8.5 per cent of Scottish GDP, levied on both living and future generations.

Suggested Citation

  • Katerina Lisenkova & Miguel Sanchez-Martinez & James Sefton, 2015. "The sustainability of Scottish public finances: a Generational Accounting approach," National Institute of Economic and Social Research (NIESR) Discussion Papers 456, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:456
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    References listed on IDEAS

    as
    1. Lisenkova, Katerina & Mérette, Marcel, 2014. "Can an Ageing Scotland Afford Independence?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 227, pages 32-39, February.
    2. Katerina Lisenkova & Marcel Mérette, 2014. "Can an Ageing Scotland Afford Independence?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 227(1), pages 32-39, February.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 55-110, National Bureau of Economic Research, Inc.
    5. Peter Zweifel & Stefan Felder & Markus Meiers, 1999. "Ageing of population and health care expenditure: a red herring?," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 485-496, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Scotland; Generational Accounting; fiscal sustainability; intergenerational equity;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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