Taxing for the future: An intergenerational perspective

Taxing for the future: An intergenerational perspective

The European debt crisis has raised fears that fiscal unsustainability in the region is triggering a collapse in the Euro zone, which could pull the European Union, the United States and Japan into recession because of the huge debt levels of these three major Organisation for Economic Co-operation and Development (OECD) regions (OECD 2011). These and other recent fiscal instability issues in Greece, Portugal and Spain have reminded us of the urgent need for fiscal consolidation and for policies to achieve fiscal sustainability that can potentially avoid the world plunging into a second global recession. This is particularly urgent for debt-strickennations1 in both the East and the West. Although raising taxes is one path towards restoring fiscal sustainability, policymakers now, more than ever, need to walk a fine line between economic stimulus and fiscal consolidation, so as to reduce the government deficits without extinguishing domestic economic recovery (Bilicka et al. 2011; Mc Kibbin and Stoeckel 2011). The perils of imposing severe austerity measures were starkly shown in Greece and Italy recently, where serious social and political turmoil resulted, including the resignation of both countries’ presidents (Cabannes 2011). There is also growing recognition that the current global patterns of consumption and investment are unsustainable, meaning that many nations must rebalance their economies towards repairing, maintaining and perhaps gaining fiscal sustainability.

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