The paper investigates the demographic transition and its impact on the intergenerational stance of current fiscal policy within the European Union with the help of generational accounting. Our findings suggest that the present fiscal policy of the selected EU Member States is in severe imbalance to the advantage of currently living generations. The intergenerational imbalance is highest in Finland and Sweden where the governments transfer a true debt to GDP ratio of over 200 percent of GDP onto future Finns and Swedes. In Austria, the UK and Spain, the generational imbalance is also extreme. A lower but still severe imbalance can be found in France, Germany and Italy. Substantial imbalances are also run by the Dutch and Danish governments, resulting in a true debt figure of approximately 70 percent. Finally, a minor imbalance to the disadvantage of future generations is found in Belgium.

There are two major sources for the generational imbalance, the stock of explicit public debt and the demographic trend. On average, the imbalance would be halved in the absence of any explicit debt. Without the double-aging of the population, approximately three quarters of the imbalance would disappear. Hence, most of the fiscal policy imbalance in the selected EU Member States stems from demographic trends. As a rule of thumb, roughly two thirds of the imbalance can be attributed to demographic transition, while one third is due to the inherited explicit public debt.

Bernd Raffelhüschen
Albert-Ludwigs-University of Freiburg, Germany
University of Bergen, Norway

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