nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2005‒08‒20
three papers chosen by
Ken D'Silva
London South Bank University

  1. Moving from Piecemeal Accounting to a Pragmatic Economic Approach to Water Pricing in Australia By Darla Hatton MacDonald; Sebastien Lamontagne
  2. Will Baby Boomers Drown in Debt? By Mauricio Soto
  3. How Do Individual Accounts Work in the Swedish Pension System? By Annika Sunden

  1. By: Darla Hatton MacDonald (Policy and Economics Research Unit,CSIRO Land and Water); Sebastien Lamontagne
    Abstract: It is often said that water is under-priced and that if the full cost of water were charged, water use would be more sustainable. Moving from a statement to actual practice requires a shift in thinking about the fundamental economics. Australia has embarked on a process of economic reform and part of the reform package in the water sector has required States within Australia to report on progress towards full cost pricing, including the set of costs and in some circumstances, benefits, through changes to the environment.
    Keywords: water, full cost, economics, externalities, Murray-Darling Basin
    JEL: Q0 Q1 Q2
    Date: 2004–03
  2. By: Mauricio Soto (Center for Retirement Research at Boston College)
    Abstract: The fact that American households have debt is not a surprise: credit cards finance our purchases, car loans pay for our wheels, student loans help us with tuitions, and mortgages buy our homes. Yet the size of the debt can seem shocking. The aggregate burden runs to nearly $10 trillion, nearly twice what it was in 1992, even after adjusting for inflation. Today, household debt is equivalent to more than 80 percent of the nation’s economy, up from about 60 percent in the early 1990s (see Figure 1). Filings for bankruptcy have also soared. In 1991, 6 out of every 1,000 adults filed for bankruptcy. This rate climbed to 9 in 2001. Given the potential of debt to undermine the retirement security of an aging population, this Just the Facts examines trends in the debt burden for older workers over the past decade and assesses how vulnerable baby boomers may be in the future. Households aged 50 to 62 represent about 20 percent of American households and hold about a quarter of the total debt. About 11 percent of them have declared bankruptcy at some point in their lives. As a result, some analysts have questioned whether baby boomers will have a comfortable retirement, and whether they will be able to pay back their obligations. Are future retirees going to be in trouble? Important measures of financial vulnerability suggest that the growth of debt might not be that worrisome. The combination of extraordinary asset growth and historically low interest rates allowed households to increase their debt relatively painlessly: their net worth grew significantly, and the portion of income used to pay for debt did not increase. This is not to say that baby boomers might not encounter a few bumps in the road or that some groups might not be vulnerable. But baby boomers as a group do not appear to have an immediate debt crisis.
    Keywords: debt, baby boomers, bankruptcy
    JEL: D91 E21 D31
    Date: 2005–03
  3. By: Annika Sunden (Center for Retirement Research at Boston College)
    Abstract: Many countries are discussing how to reform their pension systems in order to meet the demands of an aging society. A trend in these reform discussions is to introduce individual accounts as part of both public and occupational schemes. Sweden was an early mover in this process. In 1998, Sweden introduced a second tier of mandatory individual accounts — the Premium Pension — in the public system. The individual account component in the public pension system was designed as a “carve-out” and constitutes a relatively small portion of the new system. The contribution rate to the overall system is 18.5 percent: 16 percent is paid to the first tier, which is financed on a pay-as-you-go basis and pays a benefit determined by a worker’s lifetime earnings, while 2.5 percent is credited to a funded individual account. In addition, a means-tested guarantee benefit provides a minimum pension for workers with low earnings. The individual accounts are self-directed and participants can invest in a broad array of domestic and international funds. For individuals who do not wish to make an active investment decision, the government has established a default fund. The first investment elections in the Premium Pension plan took place in the fall of 2000 when all Swedes born after 1938 were able to choose how to invest their contributions from a menu of about 500 mutual funds. This brief evaluates the Swedish experience with individual accounts to date and discusses the lessons that can be learned from the first four years.
    Keywords: pensions, Sweden, individual account
    JEL: H55 P5 F
    Date: 2004–08

This nep-acc issue is ©2005 by Ken D'Silva. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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