This paper considers the implications for existing and future generations of Italians of the current course of Italian fiscal policy. Italy has a very high debt to GDP ratio as well as a very significant social security program, these aspects of fiscal policy would, by themselves, raise concerns about the size of the burden to be passed to future generations. But the concern is compounded when one considers the demographic transition underway in Italy. Like the U.S., Japan and most other Western European countries, Italy is aging due to its low fertility rate. The implication of the aging process is that there will be relatively few young and middle age Italian workers in future years to share the burden of the Italian government's massive implicit and explicit liabilities.
To understand the size of the burden that is slated to be passed to future generations of Italians we utilize a new technique to understand generational policy: Generational accounting. Generational accounting indicates a huge difference in the projected lifetime net tax treatment of current and future Italians. Unless Italian fiscal policy is dramatically and quickly altered, future generations of Italians will be forced over their lifetimes to pay the government four or more times the amount Italians who have just been born are slated to pay given the current policy. Such large payments may not be affordable because they may exceed the lifetime incomes of those born in the future, if Italian generational policy is, indeed, on an unsustainable trajectory, those Italians who are now alive will ultimately be forced to pay much more than the amount suggested by the current policy.
This paper - presented at the Workshop on "Saving in Italy: Past and Future Trends, Household and Government Behaviour", held in Rome on 16-17 January 1992 - is part of a research project undertaken at the Bank of Italy. The Italian versions of all the contributions will be published in a special issue of "Contributi all'analisi economica".
