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The author thanks Sharmini Coorey, Bob Hagemann, Albert Jaeger, Axel Schimmelpfenning, and participants at internal IMF seminars for comments.
It must be recognized however, that the intergenerational fiscal balance is sensitive to assumptions. Assuming that benefits are indexed to wages and that health expenditures per inhabitant remain constant in real terms, the intergenerational liability in the UK would rise to over 180 percent of GDP.
Perotti’s (1999) analysis is also based on the present discounted value of debt although he only calculates it five years into the future.
Separate long run coefficients were added for countries with high import penetration because, even in the long run, these countries should experience larger expenditure leakages (and hence lower private sector offsets) through the current account, holding all other factors constant.
In this specification, countries with high debt ratios are defined as those with high government debt levels.
A significant fiscal consolidation is defined as a change in the cyclically adjusted budget position measured at or above 1 percent of potential output.