Intergenerational Equity in Fiscal Policy Reform

This article argues that the idea of evaluating government fiscal policy along the dimension of intergenerational equity is largely misguided. In sharp contrast to the intragenerational distribution of wealth--where government policy plays an active and commanding role in transferring resources between and among different groups--the intergenerational distribution of wealth is determined mainly by decisions of private actors that fall outside government policy and that may blunt or even reverse the distributional effects of government policy. Unless a far greater share of intergenerational transfers is brought within the scope of government fiscal policy through such unlikely measures as the confiscatory taxation of gifts and inheritances, any coherent framework for evaluating intergenerational equity must incorporate the total distribution and redistribution of wealth across generations, whether determined by fiscal policy, nonfiscal policy, or private activity. That leaves little place for drawing informative conclusions from isolated analysis of fiscal policy. Part II examines the substantial normative problems encountered by efforts to evaluate intergenerational equity. Most significant among these is the framing problem. Efforts to understand intergenerational equity require the construction of hard but nonetheless arbitrary boundaries between different aspects of government fiscal policy, between fiscal policy and other segments of government policy, and between government activity and nongovernment activity. This framing problem distinguishes intergenerational normative inquiries from intragenerational normative inquiries. In addition, efforts to evaluate intergenerational equity must resolve difficulties presented by the absence of fixed inputs and the need to coordinate the demands of intergenerational equity with basic norms of liberal democracy. Collectively, these problems suggest that policymakers should be cautious in treating intergenerational equity as a compelling objective of government fiscal policy. Part III brackets these normative difficulties to consider the analytic problems presented by the formal public finance models for measuring intergenerational effects. As argued there, these models do not provide a full account of how fiscal policy distributes benefits and burdens across generations, and the partial account that they do provide yields results that are far too incomplete to support robust judgments about intergenerational equity. Although these models facilitate rough conclusions about the intergenerational effects of particular government programs, they do not provide a sufficient basis for making hard evaluative judgments about fiscal policy reform. Part IV examines intergenerational equity from a different approach. It considers the possibility that policymakers could relegate the problem of intergenerational fairness entirely to the political process. Although there are obvious difficulties with this approach--including the unavoidable fact that not all interested people can participate in the political process when decisions affecting them are made--it would allow for at least partial political resolution of intergenerational questions. In particular, the fact of ubiquitous intergenerational altruism among overlapping generations suggests a limited basis for trusting the political process with intergenerational questions no less than with intragenerational questions