Sustainability via intergenerational transfers in a stock-flow-consistent model

Sustainability is about meeting present needs without compromising the needs of future genera-tions. By using non-renewable resources, needs may be met for the present generation but less so for future generations, or they may be met for future generations but less so for the present one. Achieving sustainability is thus bound to have distributional consequences. But how can these equity issues be resolved in practice? More concretely, to what extent is it possible to adjust the ex-post distribution via appropriate transfers between generations? These are the topics which the present paper seeks to address. As it turns out, it is not obvious how and to what extent transfers might be possible in the first place considering that needs are usually not expressed in monetary terms but in terms of welfare and considering that, even if they are, monetary transfers pose particular problems in an inter-generational context. In the main part of the paper, a model-based analysis of inter-generational transfers will therefore be presented in order to investigate this issue. Starting from a numerical example, the analysis uses a Post-Keynesian stock-flow-consistent model with a view to gain insights on the limitations and consequences of such transfers even in the context of a growing economy. The analysis shows that inter-generational transfers face significant limitations which render substantial compensation payments practically impossible. Moreover, the analysis allows also some conclusions regarding the effects of introducing a pension systems and/or a more explicit role of public investment in capital accumulation. Thus while transfers are limited, they do have an impact on growth and accumulation.JRC.D.3-Land Resource