Generational Accounting in Latvia: Time for Action
Olaf J. de Groot (Universita Bocconi, Via Sarfatti 25, 20136, Milan, Italy)
Abstract: This study seeks to analyse the long-term sustainability of fiscal policy in Latvia. Using a methodology called Generational Accounting, the net tax burdens of different currently living generations are calculated. Using these generational accounts, the residual net tax burden of future generations is determined and it is determined that the current fiscal policy stance is not sustainable. The generational imbalance amounts to about 260% of GDP, which is near the European average. The necessary fiscal adjustments are relatively small, hut still significant. An overall tax increase of .5/c would he required to close the generational gap. Other policy options could be to decrease transfers by I 7.5% or government consumption by 25.0%. Alternative scenarios all lead to significant generational imbalances as well. On the other hand, a number of factors not included in this study may aid Latvia in achieving generational k9irness and long-term fiscal sustainability.
Keywords: Generational accounting. fiscal suslainability. Latvia
JEL codes: H53, H60