Generational accounting in Belgium: fiscal sustainability at a glance

Decoster, A., Flawinne X. and Vanleenhove, P. (2014), Generational accounting in Belgium: fiscal sustainability at a glance, Empirica, Journal of European Economics, 41 (4), 663-686, DOI: 10.1007/s10663-013-9223-1 (online 22 May 2013).

This paper uses generational accounts to analyse the long term sustainability of Belgian public finances. We derive age-profiles of detailed tax and expenditure categories from micro data and microsimulation models, and plug them into a long run demographic projection. We assess fiscal long term sustainability under current fiscal and budgetary policy for the base year 2010, and perform simulations of counterfactuals to determine the relative contribution of the most important factors of the long run unsustainability. This update of the generational accounts for Belgium shows that, not unexpectedly, the budgetary situation in Belgium violates the intertemporal budget constraint and hence is unsustainable in the long run. The current level of explicit debt, however, only plays a minor role in explaining this sustainability problem. Ageing and the related increase in age related expenditures are the main drivers of the long run fiscal imbalance and the high level of implicit debt. We disentangle the Belgian generational accounts into their regional components and show that the major explanation for regional differences in generational accounts is not divergent demographic projections, but the wide dif- ferences in socio-economic situations, as revealed by the region specific age- profiles.