Intergenerational equity

What Is Intergenerational Equity?

Intergenerational equity is the principle of fairness and justice in the distribution of resources, opportunities, and burdens between different generations. This concept, often discussed within the broader field of Public finance, posits that the decisions made today should not compromise the ability of future generations to meet their own needs. It emphasizes that each generation has a responsibility to manage the resources it inherits in a way that does not harm the prospects of those who follow²⁶, ²⁷, ²⁸. Discussions of intergenerational equity often encompass economic, environmental, and social considerations, aiming to ensure long-term societal well-being.

History and Origin

The concept of intergenerational equity has roots in philosophical thought and gained prominence in economic and environmental discussions, particularly with the rise of concerns about sustainability and long-term resource management. Economist James Tobin defined intergenerational equity in 1974 within the context of endowed institutions, stating that "The trustees of endowed institutions are the guardians of the future against the claims of the present. Their task in managing the endowment is to preserve equity among generations"²⁵.

A significant milestone in the evolution of this concept was the 1987 publication of "Our Common Future" (also known as the Brundtland Report) by the United Nations World Commission on Environment and Development. This report popularized the definition of sustainable development as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs," directly linking the idea of sustainability to intergenerational equity²³, ²⁴. Philosophers like John Rawls also contributed to the theoretical underpinnings of intergenerational justice, particularly through his "just savings principle"²¹, ²².

Key Takeaways

• Intergenerational equity focuses on fairness and justice in the allocation of resources, opportunities, and burdens across current and future generations.
• It is a core principle of sustainable development, aiming to ensure that present actions do not undermine the well-being of those to come.
• Key areas where intergenerational equity is applied include public finance (e.g., Public debt and Pension plans), environmental policy (e.g., Climate change), and the responsible use of Natural resources.
• Achieving intergenerational equity often requires balancing short-term needs with long-term consequences and involves careful consideration of Fiscal policy and resource management.

Interpreting Intergenerational Equity

Interpreting intergenerational equity involves assessing how current policies and behaviors impact the relative well-being of different generations over time. It is not about an exact quantitative measure but rather a qualitative assessment of fairness in Resource allocation. For instance, an increasing national Public debt can be seen as an intergenerational inequity if future generations are left to bear the burden of repayment without having received commensurate benefits²⁰. Similarly, the depletion of non-renewable Natural resources or the exacerbation of environmental problems like Climate change are often viewed through the lens of intergenerational equity, as current consumption patterns may limit the opportunities and living standards of those who follow¹⁹.

Hypothetical Example

Consider a hypothetical country, "Econoville," facing an aging population and rising healthcare costs. The current government implements a policy to significantly cut taxes for the working generation while increasing borrowing to cover the rising expenditures on healthcare and Social security for retirees.

In the short term, this policy might boost current consumption and appear beneficial. However, without a corresponding increase in productivity or a future plan for debt repayment, this decision could lead to substantial intergenerational inequity. The younger, working generation benefits from lower Taxation now, but the cumulative effect of increased government borrowing means that future generations will inherit a much larger Public debt. They would either face higher taxes, reduced public services, or a combination of both to service and eventually repay this debt, effectively shouldering the financial burden of a previous generation's consumption without necessarily benefiting from it.

Practical Applications

Intergenerational equity finds practical application across various domains, particularly in areas with long-term implications:

• Public Finance and Policy: Governments consider intergenerational equity when formulating Fiscal policy, managing Public debt, and designing social programs like Social security and Pension plans. The goal is to ensure that current spending and revenue generation do not disproportionately burden future taxpayers¹⁶, ¹⁷, ¹⁸. The OECD, for example, explores how population aging affects public finances and raises questions about intergenerational justice in its reports¹⁴, ¹⁵.
• Environmental Policy and Climate Change: This is perhaps one of the most prominent areas. Decisions regarding emissions, pollution, and the use of Natural resources directly impact the environmental quality and availability of resources for future generations. International discussions and legal frameworks increasingly incorporate intergenerational equity when addressing climate change¹¹, ¹², ¹³. A recent landmark case by the International Court of Justice ruled that intergenerational equity should guide the interpretation of all climate obligations, emphasizing states' responsibility to counter harm from carbon emissions for future generations.¹⁰
• Investment decisions and Capital markets: In institutional investment management, particularly for endowed institutions, intergenerational equity guides spending policies. The principle suggests that the spending rate should not exceed the after-inflation rate of compound return, ensuring that the endowment can support both current and future beneficiaries⁹. The rise of Environmental, Social, and Governance (ESG) investing also reflects a growing consideration of long-term societal and environmental impacts in financial decisions⁸.

Limitations and Criticisms

While the concept of intergenerational equity is widely recognized for its ethical importance, its practical application presents several limitations and criticisms. One challenge lies in defining "generations" and accurately forecasting the needs and preferences of future populations, who cannot participate in current decision-making processes⁷. The inherent uncertainty of future technological advancements, economic conditions, and societal structures makes precise Resource allocation across vast time horizons difficult.

Furthermore, implementing policies that promote intergenerational equity can lead to political challenges, as short-term electoral cycles often favor policies that provide immediate benefits to current voters, potentially at the expense of long-term sustainability or future burdens⁵, ⁶. For example, balancing the interests of an aging population dependent on Social security and Pension plans with the need to avoid excessive Public debt for younger generations often creates significant policy dilemmas. Critics also note that focusing solely on intergenerational fairness might sometimes overshadow crucial issues of intra-generational equity—fairness among different groups within the same generation.
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Intergenerational Equity vs. Sustainable Finance

While closely related and often overlapping, intergenerational equity and Sustainable finance are distinct concepts. Intergenerational equity is a broad ethical and philosophical principle that addresses fairness in the distribution of resources, opportunities, and burdens across generations. It posits a moral obligation for the current generation to preserve and protect resources and opportunities for future generations, encompassing economic, social, and environmental aspects.

Sustainable finance, on the other hand, is a specific financial framework and set of practices that integrate environmental, social, and governance (ESG) considerations into Investment decisions. Its goal is to generate financial returns alongside positive environmental and/or social outcomes, thereby contributing to broader Sustainability goals. While sustainable finance is a tool or approach that can help achieve intergenerational equity by directing capital towards environmentally and socially responsible initiatives, intergenerational equity is the overarching principle or objective guiding such actions. Sustainable finance provides the mechanisms to align financial flows with the long-term well-being implied by intergenerational equity.
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FAQs

What are some key examples of intergenerational inequity?

Examples of intergenerational inequity include the accumulation of large Public debt that future generations must repay, the depletion of finite Natural resources by the current generation, or the impacts of Climate change caused by historical emissions, leaving future generations to face environmental degradation and adaptation costs.

How does intergenerational equity relate to government budgeting?

In government budgeting, intergenerational equity implies that fiscal decisions, such as levels of Taxation and spending, should not unduly burden future taxpayers or deprive them of essential public services. This involves careful management of Budget deficits and long-term liabilities like Pension plans.

Is intergenerational equity only about money?

No, intergenerational equity extends beyond purely financial considerations. It also encompasses environmental quality (e.g., clean air and water), social well-being (e.g., access to education and healthcare), and the responsible management of Natural resources. It's about ensuring future generations inherit a world with comparable opportunities and quality of life.

What role do individuals play in intergenerational equity?

Individuals contribute to intergenerational equity through conscious consumption habits, supporting sustainable practices, engaging in civic participation to advocate for long-term policies, and making responsible Investment decisions. Personal choices, collectively, can influence societal trends that impact future generations.

How does population aging affect intergenerational equity?

Population aging can create intergenerational equity challenges as a smaller working population may need to support a larger retired population through Social security and healthcare systems. This often leads to debates about tax burdens and benefit levels, highlighting the need for balanced Fiscal policy to ensure fairness across age groups.¹, ²