This paper presents a set of generational accounts (GAS) that can be used to assess the fiscal burden current generations are placing on future generations. The GAs indicate the net present value amount that current and future generations are projected to pay to the government now and in the future.The generational accounting system represents an alternative to using the federal budget deficit to gauge intergenerational policy. From a theoretical perspective, the measured deficit need bear no relationship to the underlying intergenerational stance of fiscal policy.Within the range of reasonable growth and interest rate assumptions the difference between age zero and future generations in GAs ranges from 17 to 24 percent. This means that if the fiscal burden on current generations is not increased relative to that projected from current policy (ignoring the just enacted federal budget deal) and if future generations are treated equally (except for an adjustment for growth) the fiscal burden facing all future generations over their lifetimes will be 17 to 24 percent larger than that facing new borns in 1989. The just enacted budget will, if it sticks, significantly reduce the fiscal burden on future generations.

This paper illustrates the technique of generational accounting, a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting. The authors illustrate why there is no 'correct' measure of the deficit and how generational accounting--estimating the fiscal burdens current policy places on different generations--provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit. Their calculations suggest that, despite recent changes, U.S. fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive.

This paper presents a set of generational accounts (GAS) that can be used to assess the fiscal burden current generations are placing on future generations. The GAs indicate the net present value amount that current and future generations are projected to pay to the government now and in the future.The generational accounting system represents an alternative to using the federal budget deficit to gauge intergenerational policy. From a theoretical perspective, the measured deficit need bear no relationship to the underlying intergenerational stance of fiscal policy.Within the range of reasonable growth and interest rate assumptions the difference between age zero and future generations in GAs ranges from 17 to 24 percent. This means that if the fiscal burden on current generations is not increased relative to that projected from current policy (ignoring the just enacted federal budget deal) and if future generations are treated equally (except for an adjustment for growth) the fiscal burden facing all future generations over their lifetimes will be 17 to 24 percent larger than that facing new borns in 1989. The just enacted budget will, if it sticks, significantly reduce the fiscal burden on future generations.

In hiring new workers, risk-neutral employers equate the present expected value of each worker's compensation to the present expected value of h i s h e r productivity, Data detailing how present expected compensation varies with the age of hire embed, therefore, information about how productivity varies with age. This paper infers age-productivity profiles using data on the present expected value of earnings of new hires of a Fortune 1000 firm. For each of the five occupation/sex groups considered, productivity falls with age, with productivity exceeding earnings for young workers and vice versa for older workers.

IN 1950 THE RATE of net national saving in the United States was 12.3 percent. In 1994 it was only 3.5 percent. ' The difference in these saving rates is illustrative of a dramatic long-term decline in U.S. saving. The U.S. saving rate averaged 9. 1 percent per year in the 1950s and 1960s, 8.5 percent in the 1970s, 4.7 percent in the 1980s, and just 2.7 percent in the first five years of the 1990s.2 The decline in saving in the United States has been associated with an equally dramatic decline in domestic investment. Since 1990, net We thank the Office of Management and Budget and the Social Security Administration for providing long-term fiscal and population projections, and Jonathan Skinner for providing health expenditure data. We also thank Orazio Attanasio, Barry Bosworth, Robert Haveman, Andrew Samwick, Jonathan Skinner, and numerous seminar participants for helpful comments. The opinions expressed in this paper are those of the authors and are not necessarily shared by the Federal Reserve Bank of Cleveland or the Congressional Budget Office. 1. The net national saving rate is defined as net national product less national consumption (household consumption plus government purchases), divided by net national product. The National Income and Product Account (NIPA) data used in the body of this paper do not incorporate recently revised NIPA data for the years starting in 1959. 2. The recently released revised NIPA data also show a dramatic decline in the U.S. net national saving rate. For example, during the 1960s the saving rate based on the revised data averaged 12.1 percent compared with 4.6 percent during the period 1990-95. Saving rates in the revised data are higher than in the unrevised data because government consumption has been redefined to exclude government purchases of durables, but to include the imputed rent on the stock of government durables. The Commerce Department appears, however, to be understating this imputed rent because its measure includes only the depreciation on the stock of government durables. 315 316 Brookings Papers on Economic Activity, 1:1996 domestic investment has averaged 3.6 percent per year, compared with 8.2 percent in the 1950s, 7.9 percent in the 1960s and 1970s, and 6.1 percent in the 1980s. The low rate of domestic investment appears to have limited growth in labor productivity and, consequently, real wages. Since 1979, labor productivity has grown at less than half the rate observed between 1950 and 1979, and total real compensation (wages plus fringe benefits) per hour has grown at only one-seventh its previously observed rate. This paper develops a unique cohort data set to study the decline in U.S. saving. It focuses on four periods for which Consumer Expenditure Surveys (CEX) are available: 1960-61, 1972-73, 1984-86, and 1987-90. These and a host of other microeconomic surveys are combined with National Income and Product Account (NIPA) data and other aggregates to form measures of cohort-specific consumption and resources. The benchmarking of our cohort data s...