On predictive distributions of public net liabilities |
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Authors: | Juha M Reijo |
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Institution: | aDepartment of Statistics, University of Joensuu, P.O. Box 111, 80101 Joensuu, Finland;bResearch and Development, Finnish Pension Alliance, Lastenkodinkuja 1, 00180 Helsinki, Finland |
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Abstract: | The analysis of the sustainability of public sector finances requires an accounting of all future revenues and all future spending that we would expect, under current tax laws and current entitlements. The classical calculation does not acknowledge the inherent uncertainty of the future economic and demographic developments, so the results can be misleading. Our aim is to produce a more robust summary of the sustainability of the public sector than the one currently available. By taking a forecasting point of view, our formulation takes into account the uncertainty of future productivity, stock and bond markets, and demography. Methodological complications that arise in the stochastic setting are discussed. Estimates of the relative roles of economics and demographics in the uncertainty of public net liabilities are presented. |
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Keywords: | Demography Discounting Fiscal sustainability Generational accounting Population forecasting Stochastic methods |
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