Generational Accounting

DEFINITION of 'Generational Accounting'

An accounting method that considers how current fiscal policies affect future generations. Generational accounting analyzes whether government spending and tax programs that benefit current members of society will produce an unfair tax obligation for future generations. The purpose of this accounting style is to achieve generational balance, where current and future generations have equivalent lifetime net tax rates, which allows for fiscal sustainability.

BREAKING DOWN 'Generational Accounting'

The government's tax programs and fiscal policy can be adjusted to provide more care and benefits for certain members of a country's population. However, focusing programs on a specific group forces other generations to pay the costs, essentially imposing a taxation without representation. For example, spending on retirement programs for the elderly requires that younger generations foot the bill.

This concept can be extended to future generations. Let's say the government were to lavishly spend on programs to benefit its current population in the short term. The debt obligations could be so large, that they could not be repaid by the current population in an average lifetime. In this case, the debt would be passed on to the next generation of citizens, who must then pay for benefits they never received. Generational accounting aims to eliminate policies that negatively impact future generations.

RELATED TERMS
  1. Generation X (Gen-X)

    Generation X or Gen-X is the name given to the generation of ...
  2. Generation Gap

    The differences found between members of different generations. ...
  3. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...
  4. Golden Rule

    The Golden Rule, as it pertains to government spending, stipulates ...
  5. Fiscal Neutrality

    Fiscal neutrality occurs when taxes and government spending are ...
  6. Millennial

    A name given to the generation born between 1982 and 2004. The ...
Related Articles
  1. Personal Finance

    Managing Varied Generations In The Workplace

    With today's workforce made up of many different generations, here are some ways employers can help different generations work together more smoothly.
  2. Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  3. Economics

    Macroeconomics: Government - Expenditures, Taxes and Debt

    By Stephen Simpson ExternalitiesIn a market economy there are important differences between public and private goods. Private goods are considered "rival and excludable" - one person consuming ...
  4. Your Clients

    How GenLink Can Help Advisors Navigate Generations

    A new tool aims to help advisors bridge the generational gap.
  5. Your Clients

    How to Win Gen X Clients

    Less numerous than the two generations they're sandwiched between, Gen X clients will still be a lucrative group for advisors. Here's how to snag them.
  6. Active Trading Fundamentals

    The Power Of Program Trades

    Learn how programs make up a significant portion of the volume traded each day.
  7. Taxes

    Retirement Savings: Tax-Deferred Or Tax-Exempt?

    There advantages and disadvantages to both types of savings accounts. Find out which one is right for you.
  8. Your Practice

    Advisors: $240B in Fees Up for Grabs by 2030

    Advisors have an opportunity to win generational assets over the next 15 years. Here are some tips on how to cater to different demographics.
  9. Investing

    Are Milliennals All About Responsible Investing?

    The hardest part about understanding money management styles is that generations don’t (or can’t) understand how other generations are able to justify their decisions.
  10. Economics

    Explaining Corporate Tax

    A corporate tax is a tax levied on the profits a corporation generates.
RELATED FAQS
  1. What's the difference between monetary policy and fiscal policy?

    Learn how monetary policy refers to bank actions to control interest rates and money supply, while fiscal policy refers to ... Read Answer >>
  2. Who sets fiscal policy, the president or congress?

    Discover how fiscal policy is set in the United States, including how all three branches of government can affect a given ... Read Answer >>
  3. How much will it cost to hire an accountant to do my taxes?

    Find out how much it costs to hire an accountant and what benefits and services you can expect from your accountant. Read Answer >>
  4. What are some examples of expansionary fiscal policy?

    Learn about expansionary fiscal policy – tax cuts and government spending – that are used by governments to boost spending ... Read Answer >>
  5. How successful is fiscal policy in guiding the national economy?

    See why it is difficult to evaluate the impact of fiscal policy on the national economy and how fiscal tools have failed ... Read Answer >>
  6. Which of the following statements most accurately describes the impact of an expansionary ...

    The correct answer is: b) The foundation of this model is the "Ricardian equivalence", which states that an expansionary ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center