GENERATIONAL ACCOUNTS FOR THE DUTCH PUBLIC SECTOR^*

After 2010 the aging of the population will start to form a sizable burden on public finances. On the other hand, some shifts in the private sector, such as the increase of labour participation, are expected to generate higher tax revenues. These contrasting developments raise the question whether the present system of public arrangements is sustainable in the long run or will, on balance, result in an unfavourable treatment of future generations. This paper, which assigns net public sector benefits to generations, indicates that the present arrangements are unsustainable when indexed to productivity growth. However, the required policy adjustment can be considered small. Because the alleviating factors will occur before the sizeable effects of aging set in, implementing a sustainable system implies a sharp reduction of the budget deficit in the coming decades. The paper uses, and in some ways extends, the standard Generational Accounting methodology as developed by Auerbach, Gokhale, and Kotlikoff.