Despite amassing the world’s largest sovereign wealth fund, Norway has still not been saving enough to meet future budget demands from an aging population, according to a recent paper from economists at the International Monetary Fund (IMF). The paper assumes that adhering as closely as possible to the projected future paths of spending and revenues is a desirable goal. Social welfare considerations, however, suggest that reducing future spending relative to revenues is a better objective—and that Norway has, if anything, saved too much.

The Debate

Earlier this year, in a Policy Brief I argued that Norway has saved too much of its oil revenues relative to a benchmark in which the benefits of oil production are shared equally across generations. In response to my study, Ezequiel Cabezon and Christian Henn calculate that on current trends, the present value of Norway’s future public sector expenditures exceeds the present value of its future public sector revenues by 450 percent of GDP. Norway’s net financial asset position of 210 percent of GDP is not large enough to fully finance the future spending gap, implying an intertemporal net financial worth of –240 percent of GDP.[1] Thus, they reach “the opposite conclusion,” namely that Norway has not saved enough.

Intertemporal Accounting

Intertemporal accounting augments conventional analysis of the public sector’s financial position by including future sources of revenue and demands on spending that are not embodied in existing assets and liabilities.[2] Thus, a country with a lot of public debt is typically viewed as in a bad financial position. But, if its future revenues are expected to exceed its future spending by more than enough to service the debt, its intertemporal financial position would be good. On the other hand, a country with no public debt would not be in a good intertemporal financial position if it expects spending needs to outstrip future tax capacity. In its October 2018 semiannual Fiscal Monitor , the IMF took a step toward publishing intertemporal accounts of a large group of countries.[3]

A large intertemporal net worth, either positive or negative, is a sign that revenues or expenditures need to change at some point from their assumed future paths.[4] But the accounting framework sheds no light on the social welfare implications of past or future imbalances.

Application to Norway

Based on IMF and Norwegian government forecasts, Cabezon and Henn project a long-term economic growth rate of 1.75 percent for Norway, an inflation rate of 2 percent, and a nominal rate of return and discount factor of 5 percent. Accordingly, Norway’s net financial assets of 210 percent of GDP could fund expenditures 2.6 percentage points above noninvestment revenues indefinitely. The saving “shortfall” is a mathematical implication of their assumption that future expenditures will exceed noninvestment revenues by even more than 2.6 percent of GDP indefinitely. The key question is whether current (and previous) generations should be expected to sacrifice so much to fund budget deficits of future generations.

Cabezon and Henn (figure II.1 in their study) assume a primary budget balance that decreases steadily to –14 percent of GDP by 2100. A series of small tax increases or expenditure cuts of only 0.175 percent of GDP per year would be sufficient to return the primary balance to zero by 2100.[5] These budget cuts would be much smaller than the annual increase in per capita income from productivity growth, which the IMF projects at 1.25 percent per year. Future generations would still be considerably wealthier than the current generation.

According to a study by the Organization for Economic Cooperation and Development (OECD), the largest contributor to rising future public expenditures is the rising cost of health care and the growing share of the elderly in the population. Given that future generations will have access to better health care and enjoy longer lives, it is unfair to expect current generations to sacrifice to pay for these higher future costs.

Norway in the International Context

Public sector budget trends in many other advanced economies and some developing economies are similar to those in Norway. In the United States, for example, the Congressional Budget Office (CBO) projects noninterest spending to increasingly exceed revenues over the next 30 years. Even if the gap is assumed to stabilize after 30 years, the implied intertemporal net financial worth of the US public sector would be –425 percent of GDP.[6] Assuming the gap continues widening after 30 years, as Cabezon and Henn do for Norway, would lead to an even more negative intertemporal net worth.

If Cabezon and Henn’s conclusions were applied to all countries, the implied savings shortage could easily amount to hundreds of percentage points of world GDP. Any attempt by governments to boost savings to fill that gap would create a worldwide depression of unprecedented magnitude. It would surely be impossible for governments to fund even a small part of their collective future budget deficits through higher current saving, even if that saving were to take place over 10 or 20 years. Given that the global stock of capital is around 300 to 400 percent of global GDP, an increase in the capital stock on the order of 100 percent of GDP or more would drive down the rate of return on investment substantially, invalidating the maintained assumption of a constant discount factor and increasing the present value of future deficits.[7]


Countries where public sector spending is projected to exceed revenues are going to deal with the imbalance mainly by raising revenues and/or cutting spending in the future and not by increasing current saving.

Norway succeeded in massively increasing its current (and past) saving because it was a relatively small country whose saving did not have a pronounced effect on global financial markets. The economic consequences of many other countries following Norway’s example would be catastrophic. Even if it were possible to massively increase public saving without causing a depression, it would be a tremendous social injustice to demand that the current generation sacrifice so much for future, richer generations.


1. Norway’s overall net asset position is 340 percent of GDP, but Cabezon and Henn (figure 6 in their study) suggest focusing on net financial assets, around 210 percent of GDP, presumably because many nonfinancial assets such as government buildings and land may not generate a stream of future income.

2. Intertemporal accounting uses the concept of discounted present value to enable the comparison of existing stocks of assets and liabilities with future streams of revenues and expenditures. The public sector’s intertemporal net worth is the sum of its current assets and the present value of its future revenues minus its current liabilities and the present value of its future expenditures.

3. The report covered all assets and liabilities of the public sector, including pension liabilities for public-sector workers, but did not cover public pension liabilities for private-sector workers or other future expenses and revenues.

4. This conclusion assumes that the discount rate used to calculate net worth is equal to the rate of return on public saving or borrowing.

5. One element of such a program might be to increase the retirement age in step with increases in longevity. Finland recently adopted such a reform, which is projected to keep future pension expenditures in balance with future payroll tax revenues.

6. This analysis is based on CBO’s June 2018 long-term budget projection, which assumes nominal GDP growth of 4 percent. The discount factor is the same as that used by Cabezon and Henn, 5 percent. The present value of future deficits is –324 percent, to which is added the IMF’s estimate of the current net financial assets of the US public sector.

7. Global capital stock and GDP data are from the Penn World Tables at