infrastructure investment the cost of capital and regulation an assessment the paper considers the role of infrastructure in improving economic performance and its compar ative neglect relative to traditional macroeconomic and microeconomic policies it explains why infrastructure matters why britain s infrastructure performance has been poor and summarizes the scale of the challenge for the coming decade privatization liberalization and competition have focused on monopoly market failure and private incentives but they have neglected the time inconsistency problem which confronts investors in networks with high fixed and sunk costs the failure to commit which has characterized british approaches to infrastructure has been partially addressed through the creation of regulated asset bases rabs backed up by the duty on regulators to ensure that functions can be financed the paper considers how the rabs can be developed to provide credible long term contracts over a wide range of activities and how the financial regu latory regime can complement this commitment notably through the split cost of capital and the indexation of the cost of debt approaches the paper concludes by setting out the building blocks of a credible regulatory framework for infrastructure together with the impacts on reducing the cost of capital the role of the state in reinforcing this commitment and the associated institutions are also set out

household saving in ldcs credit markets insurance and welfare some ways in which farmers in ldcs can protect their living standards against fluctuations in income are discussed after considering the theory of consumption under uncertainty when there is no or limited borrowing the case where some borrowing is allowed is also examined empirical evidence from some ldcs is used to look at i household borrowing and lending their importance and timing and their role in smoothing consumption and ii the life cycle behavior of consumption and income the results suggest that hump lifecycle saving is not likely to be a very important generator of wealth in ldcs and provide further evidence on the limited role of credit markets

a cooperative game approach to optimal saving theory toward a constitution for savings 1 two years ago after a post nobel conference at the university of turin james buchanan told me that he was working on pure allocational grounds on the economic foundations of two ethical principles defined as victorian principles or virtues and comprised the ethics of work and the ethics of savings 1 he reasoned that the allocational foundation of the ethics of work should mainly be found in the external economies of increasing returns related to the increase in labour supply as for the allocational foundations of the ethics of savings the arguments where those previously used in the extensive discussion of the failures of the keynesian democracy in deficit and of the reasons of constitutional fiscal rules see brennan and buchanan 1985 buchanan and wagner 1977 the foundations of these virtues therefore are intended to be strictly paretian or rather taking buchanan s contractarian constitutional point of view wicksellian encouraged by buchanan s lead i aim in this paper to find rules relating to optimal saving in terms of an ideal game equilibrium which results both in pareto efficiency and fairness to the parties involved who are the individuals living in the various periods of time in a given country or society fair here means a distribution according to rules of justice as impartiality or mutual advantage i e when the players do not exert any threat or pressure arising from their different bargaining power 2 my approach although analogous to that of buchanan does differ because rests on rules of justice consistent with pareto improvements which due to these characters might have a salience as stable conventions 3

transition to fully funded pension schemes a non orthodox criticism summary the paper examines the dominant views on the adoption of mandatory fully funded pension schemes ff as a partial or complete substitute for the unfunded payg three obstacles to the ff reform are envisaged to begin with the reform may fail to boost workers marginal propensity to save since workers may contract their voluntary saving to compensate the larger mandatory saving to ff schemes secondly if payg s payroll contributions are reduced and diverted to a ff scheme the larger private saving supply will be balanced by a lower government saving if the government is committed to honour the current pension payments thirdly keynes saving paradox reinforced by the capital theory critique initiated by sraffa suggests that the effect of the rise in the marginal propensity to save is not an increase in capital accumulation but rather a fall of income and employment

saving wealth and the exchange bequest motive a model of exchange motivated bequests based upon childrens attentions to parents provided when the children are young adults is joined to a standard life cycle specification to examine the consequences for wealth and savings the results of general equilibrium simulations show contribution to be far below some recent estimates exchange motivated bequests produce offsets to life cycle savings that limit their ability to increase total savings epargnes richesse et le legs motive par la logique de l echange l auteur combine un mod0e de legs motive par la logique de l 6change les parents obtenant en echange l attention de leurs enfants quand ceux ci sont jeunes adultes et une specification standard du modele

survival of the gene intergenerational transfers and precautionary saving abstract this paper provides a model of bequest and investment in children s human capital at low incomes it posits that parents and children are linked through their common concern of grandchildren and intergenerational transfers provide a material basis for the perpetuation of the family line the model characterizes intergenerational strategic interactions in a dynamic game theoretical framework moreover it explores intergenerational uncertainty as a source of precautionary saving in contrast with the existing literature the model implies that there are qualitative differences between precautionary saving from one s own income uncertainty and precautionary bequests from children s income uncertainty

why do people save a micro analysis of motives for household saving in japan this paper estimates the contribution of net saving for each of twelve motives to overall household saving in japan using micro data from a japanese government survey and finds that net saving for the retirement and precautionary motives both of which are consistent with the life cycle model are of dominant importance it also finds that the saving motives of japanese households vary greatly by age and that they save at each life stage for motives that are appropriate for that life stage these findings suggest that the life cycle model is highly applicable in the case of japan

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

trade surpluses and life cycle saving behaviour abstract the national income account identity and the life cycle theory of consumption together imply that the current account should be a function of the age structure a country with a high proportion of young and retired should have current account deficits using a panel of 84 countries we find empirical support for this hypothesis

leaving home as a self selection device we develop a model of intergeneratioal coresidence and transfers within the family in a setting of asymmetric information following an exchange motive altruistic parents receive services from their children who may make them financial gifts in return however parents do not know the privacyc ost to children of home sharing hence they make additional transfers in order to discipline their children and give them incentives to reveal their true privacy cost we show that only children who stay at the parental home receive an informational rent and that this rent is greaterf or recipients with a low privacy cost

intergenerational transfers borrowing constraints and saving behavior evidence from the housing market abstract we examine the effects of intergenerational transfers on saving behavior by analyzing transfers targeted to first time home purchases transfer recipients have a shorter time to save for a down payment of 9 20 for each dollar of transfer received total savings falls by 29 40 cents and the down payment rises by 61 71 cents transfer recipients increase the value of the home purchased but by an amount that is much lower than possible if the transfer were fully leveraged in addition transfers appear to help households achieve certain down payment thresholds that give favorable mortgage terms

secular changes in wealth inequality and inheritance data suggest that the distribution of wealth among households in the usa and uk has become more equal over the last century though at least for the usa the pattern may have reversed recently this paper shows that a model in which all households save for life cycle reasons and some for dynastic purposes as well offers a possible or partial explanation the model predicts rising cross sectional equality of wealth when longevity increases there may also be implications about very recent changes expansion of social security programmes and government deficits can lead toward more wealth inequality slower growth may do the same

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

does demographic change matter for growth abstract how important is the demographic transition for economic growth to answer this question this paper constructs a general equilibrium overlapping generations model with endogenous fertility the model is calibrated to data from taiwan a country that experienced rapid economic growth while undergoing significant demographic transition our results suggest that more than one third of the output growth in taiwan during the past four decades can be attributed to demographic transition while tfp growth explains another third and the remainder is mainly due to skill biased technological progress our results show that demographic change is an important driver of the growth process in countries undergoing rapid fertility decline

how inheritances shape wealth distributions an international comparison abstract we use data from the european household finance and consumption survey in order to examine the distributional effect of intergenerational wealth transfers on the net worth distribution in 8 european countries and compare it to recent findings for the us to do so we resort to the decomposition of the coefficient of variation as suggested and applied by wolff 1987 2002 2015 and wolff and gittleman 2014 the results seem to imply that inheritances and gifts have a vastly equalizing effect on inequality in household wealth in all 8 countries

precautionary savings a panel study theoretical literature shows that income uncertainty boosts saving yet empirical work is incomplete i test for the precautionary motive for saving using panel data knowing this motive s size is important for gauging the responsiveness of saving to government programs that reduce uncertainty and for comparison to other motives such as bequests most empirical studies of precautionary saving use either aggregate time series or cross sectional data which cannot capture the effects of individual income uncertainty i derive measures of total permanent and transitory income uncertainty from panel data the national longitudinal survey and find a strong precautionary motive a doubling of uncertainty increases the ratio of wealth to permanent income by 29

efficient investment in children abstract many would say that children are society s most precious resource so how should we invest in them to gain insight into this question a dynamic general equilibrium model is developed where children differ by ability parents invest time and money in their offspring depending on their altruism this allows their children to grow up as more productive adults first the efficient allocation is characterized next this is compared with the outcome that arises when financial markets are incomplete the situation where child care markets are also lacking is then examined additionally the consequences of impure altruism are analyzed journal of economic literature classification numbers d1 d31 d58 i2

uk transport policy 1997 2001 the 1997 government announced policies and changes in administration but the statistics show that little else was achieved road traffic growth was temporarily tamed by an increase in the price of fuel which integrated policies on transport environment and land use this was not sustained so there will be more congestion and more road capacity must be provided a coherent policy on charges was absent though congestion charging will help if eventually implemented little freight was transferred to rail neither integration nor social inclusion was improved london became less integrated and policy on the underground was a failure administration of the railways remains confused there are doubts about the technical managerial and financial feasibility of the expansion envisaged the bus was given inadequate attention the treasury dominates through the public spending control process which fetters local authorities and impedes infrastructure investment proven borrowing mechanisms offer alternatives for locally accountable capital financing copyright 2002 oxford university press

bequest and wealth accumulation are some pieces of the puzzle missing the lively debate between laurence j kotlikoff and franco modigliani presented in the spring 1988 issue of this journal concerns an old question what is the main motivation for saving and therefore for the accumulation of wealth more specifically what are the respective contributions to aggregate wealth of 1 saving for retirement also known as hump saving 2 precautionary savings and unintended bequests due to uncertainty about the length of life and 3 planned bequests of course other wealth holding motives are possible but let us follow kotlikoff and modigliani in setting them aside for now if modigliani s life cycle hypothesis is to be viewed as a close to approximation of reality then the bulk of existing wealth should have resulted from some combination of hump and precautionary saving our comment on this dispute attempts to advance two issues first the controversy involves an enormous gap between empirical estimates of the share of inherited wealth in total accumulation even though the estimates are often based on the same data we hope to clarify why the estimates vary so widely second the kotlikoff modigliani dispute is presented as an american issue with little extension abroad we will present some results from other countries that bear on the controversy some of the estimates from kotlikofi s paper originated in a 1981 paper he wrote with lawrence summers which is why we sometimes refer to his position as the kotlikoff summers argument in this comment the problem of conceptualizing the contribution of bequest to aggregate savings can be summarized with a thought experiment assume all bequests were confiscated

ricardian equivalence are the required assumptions defensible abstract ricardian equivalence re requires universal provision of bequests for purely altruistic reasons this paper argues that no defensible set of values for relevant parameters is consistent with this requirement hence observed bequests must at least partly reflect motives inconsistent with re

forestry and the bequest motive abstract with an overlapping generations model for trees and humans it is shown that in a small open timber producing economy both in a setting where the economy is planned in order to maximize an intertemporal social welfare function and in a decentralized market economy long term forest investments should be evaluated by their net present value this is so provided that the existing generation has some if even very small concern for the well being of the next generation a review of empirical studies among nonindustrial private forest owners in the u s and in sweden gives support to the suggestion that this mechanism based on a tinge of altruism may be more important in promoting long term silvicultural investments than the incentives given by existing land markets

on the long run evolution of inheritance france 1820 2050 this paper attempts to document and account for the long run evolution of inheritance we find that in a country like france the annual flow of inheritance was about 20 25 of national income between 1820 and 1910 down to less than 5 in 1950 and back up to about 15 by 2010 a simple theoretical model of wealth accumulation growth and inheritance can fully account for the observed u shaped pattern and levels using this model we find that under plausible assumptions the annual bequest flow might reach about 20 25 of national income by 2050 this corresponds to a capitalized bequest share in total wealth accumulation well above 100 our findings illustrate the fact that when the growth rate g is small and when the rate of return to private wealth r is permanently and substantially larger than the growth rate say r 4 5 vs g 1 2 which was the case in the 19th century and early 20th century and is likely to happen again in the 21st century then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality contrarily to a widely spread view modern economic growth did not kill inheritance

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

the effect of inheritance receipt on retirement abstract this paper provides new evidence on how wealth shocks influence retirement behavior economic theory generally posits that leisure is a normal good yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply we use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement especially when the inheritance is unexpected this evidence has important implications for how public policies such as pension or tax reform may influence retirement behavior through the wealth effect

the role of intergenerational transfers and life cycle saving in the accumulation of wealth he purpose of this paper is to review what economists know at present about the following question how large a portion of the existing wealth is the result of a bequest motive that is of accumulation for the specific purpose of leaving bequests i will also endeavor to clarify why an answer to this question is of interest in the early keynesian period when the study of national saving first attracted wide interest relatively little attention was paid to what led people to save though it was generally understood that the main systematic reason was to leave bequests j m keynes in the famous chapter 9 of the general theory of employment interest and money 1936 had listed seven distinct motives for saving besides the leaving of bequests but five of these which include to increase one s future income or to insure one s independence and power implied that all or nearly all the accumulation would finally wind up as bequeathed wealth this in turn meant that most private wealth originated through bequests that is it either had been received through bequests or was destined to be bequeathed and indeed how else could society accumulate wealth however keynes 1936 p 107 also mentioned two further motives precaution that is to build up a reserve against unforeseen contingencies and foresight that is to provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present as for example in relation to old age family education or the maintenance of dependents these motives in contrast to most of the previous ones have the

intergenerational transfers and capital market imperfections evidence from a cross section of italian households abstract we investigate whether a system of family finance exists and to what extent it is able to offset capital market imperfections a simple model of intergenerational transfers implies that the probability of a liquidity constrained consumer receiving a transfer is negatively correlated with his current endowment and positively correlated with his future resources we test this proposition using a recent survey of italian households in which both transfer recipients and liquidity constrained households are readily observable the results indicate that private transfers help to ease borrowing constraints however a substantial number of liquidity constrained households remain after transfers have been made

the wealth age relation among the aged aged people face the problem of allocating over the rest of their lifetimes the wealth that they have accumulated during their working years this problem is fairly complex because they are uncertain about the dates of their death and because they may wish to use their wealth to finance general consumption or hold it to meet emergencies leave estates or maintain power or status whether skilled at dynamic programming or not aged people effectively do make these decisions what are the results some studies of the entire lifetime pattern of saving and wealth tend to support the simple life cycle model in which the aged use up their wealth to help finance consumption harold lydall for example found saving rates to increase and then decrease with age in the whole population and to be negative for the group aged 65 and over guarded support for the theory was found by franco modigliani and albert ando in britain and by dorothy projector in the united states more recently a f shorrocks examined the lifetime pattern of wealth holding in estate tax data for a single cohort and found the hump pattern that is characteristic of life cycle saving other evidence on wealth holding runs contrary to this however in a study of estate tax returns in washington d c james d smith found that wealth increased with age among the aged after controlling for other demographic variables examining national estate tax data john brittain found wealth to increase with age in the united states and a b atkinson and a j harrison reported the same pattern in england and wales in a sample of tiaa annuity recipients analyzed by james mulanaphy over half reported that their total savings had increased during retirement and another quarter reported that their savings had remained about the same in this paper i examine wealth holding patterns among aged married couples using survey data representing the entire aged population of the united states in 1968 the statistical analysis serves as a test of the hypothesis that emerges from life cycle theory and provides some further exploration into the economic behavior of the aged i find that the aged tend to increase their wealth over time

empirical tests of the life cycle hypothesis comment this comment examines the contention of betsy buttrill white 1976 1978 that a multiperiod life cycle model cannot generate values of aggregate savings as large as in fact observed i argue that her results reflect an entirely arbitrary choice of parameters and that for other equally plausible values of these parameters the life cycle model generates saving similar to or greater than that actually observed hence the model cannot be rejected as white proposes on the basis of such a simple test of plausibility it should be noted at the outset that the argument of this paper is distinct from that of lars soderstrom 1982 who accepts white s basic result and then shows that if the structure is generalized to incorporate stochastic lifetimes the result is not robust my argument here is that white s contention is incorrect when examined on its own terms

do bequests increase or decrease wealth inequalities this paper finds that individuals in japan do not leave very significant bequests that parents often require a quid pro quo for bequests to their children and that wealthier individuals leave less bequests meaning that bequests ameliorate wealth inequalities

a welfare analysis of social security in a dynastic framework in this article we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability contrary to previous research our results indicate that steady state welfare increases with social security for most households although by very different amounts this result is mainly due to two factors first the presence of two sided altruism significantly mitigates the crowding out effect of unfunded social security second ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security

subjective life horizon and portfolio choice abstract using data from a u s household survey we examine the empirical relation between subjective life horizon i e the self reported expectation of remaining life span and portfolio choice we find that equity portfolio shares are higher for investors with longer horizons controlling for gender specific age effects socio economic characteristics health and optimism our result is robust to accounting for the endogeneity of equity market participation or instrumenting subjective life horizon with parental survival finally we show that the effect of a shortening horizon on portfolio allocation is stronger for households without bequest motives

developing transport infrastructure for the low carbon society for the uk and other advanced economies the transition to a genuinely low carbon society is a major undertaking within transport changes to vehicle and aircraft technology are likely to be the key drivers of this change underpinned by a more consistent and comprehensive approach to carbon pricing infrastructure investment is likely to be needed to cater for travel growth but this should be on the basis that improvements in carbon efficiency outweigh the upward pressure of growth on emissions a radical shift in the power supply for road transport to support electric vehicles could also have significant infrastructure requirements and there will be potentially significant soft investment requirements associated with improved traffic management travel information systems and road pricing road pricing and an extension of carbon pricing particularly to aviation create income flows which may help to fund transport infrastructure development in a world of constrained public finances

ricardian equivalence long run leviathan abstract this paper presents a heterogenous overlapping generations with altruism model in which intergenerational discounting is stochastic the model nests three popular macroeconomics models those of ramsey economic journal 38 152 1928 543 559 diamond american economic review 55 1965 1126 1150 and a variant of the blanchard journal of political economy 93 2 1985 223 247 buiter the economic journal 98 391 1988 279 293 weil journal of public economics 38 2 1989 183 198 model it is shown that under a mild condition originally derived by weil journal of monetary economics 19 3 1987 377 391 the long run capital intensity is robust to practically every popular theoretical criticism of the standard ricardian model these criticisms include the imperfect inheritability of time preference parameters and hence finite horizons on the part of all households myopia in the form of overly discounting the future borrowing constraints distortionary labor taxation exchange strategic bequest motives common cultural constraints egalitarian bequests and primogeniture endogenous fertility and joy of giving while precautionary saving can theoretically violate long run neutrality the asymptotic capital intensity is still bounded below by preference parameters the overall conclusions are sharply at odds with those found in most articles dealing with the theoretical foundations of ricardian equivalence

the impact of intergenerational transfers on household wealth inequality in japan and the united states our paper sheds light on the implications of intergenerational transfers for wealth inequality by examining whether or not individuals who receive intergenerational transfers from their parents are more likely to leave bequests to their children than those who do not using microdata for japan and the united states the estimation results show that the receipt of intergenerational transfers from parents and or parents in law increases the likelihood of individuals leaving bequests to their children in both japan and the united states which in turn is likely to contribute to the persistence or widening of wealth disparities however such a tendency is found to be stronger among less better off households in both countries and this may help alleviate the disequalising effect of intergenerational transfers on the distribution of wealth at least to some extent

measuring self control problems a structural estimation we perform a structural estimation of the preference parameters in a buffer stock consumption model augmented with temptation disutility we adopt a two stage method of simulated moments methodology to match our simulated moments with those observed in the us survey of consumer finances to identify the parameters we use liquid and quasi liquid retirement wealth holdings at different ages as target moments we find evidence of a significantly positive degree of temptation and estimates under the unrestricted model are more precise than estimates under the restricted model with no temptation overall a model with temptation preferences explains better the observed target moments

the global concentration of wealth this paper compares changes in relative and absolute wealth concentrations to establish whether both processes have followed similar trajectories the findings indicate that while the relative wealth concentration level has increased in recent times it is not extraordinarily high from a historical perspective in contrast the absolute wealth concentration level is most likely higher than has ever previously occurred due to the growth of per capita wealth holdings and the population size of high net worth individuals hnwis the available data also suggest that hnwis recovered very quickly from the losses that they experienced in the financial crisis of 2008 as a result hnwis wealth holdings in 2013 were at least 30 higher than they were in 2007 the post crisis recovery of billionaires was even stronger with their 2014 net wealth holdings more than 85 higher than 2007 levels

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

social security in a classical growth model this paper develops a growth model with overlapping generations of workers who save for life cycle reasons and ricardian capitalists who save from a bequest motive the population of workers accommodates growth so that the rate of capital accumulation is endogenous and determines the growth of employment two regimes are possible one in which workers saving dominates the long run and a second in which the long run equilibrium growth rate is determined completely by the capitalist saving function sometimes called the cambridge equation the second regime exhibits a version of the pasinetti paradox changes in workers saving affect the level but not the growth rate of capital in the long run applied to social security this result implies that an unfunded system relying on payroll taxes reduces workers lifetime wealth and saving creating level effects on the capital stock without affecting its long run growth rate these effects are mitigated by the presence of a reserve fund various levels of which are examined calibrating the model to realistic parameter values for the us facilitates an interpretation of the controversies over the percentage of the national wealth originating in life cycle saving and the effects of social security on saving the model is offered as an analytical framework for the review of current topics in fiscal policy in particular identifying the social security reserve fund as a potential vehicle for generating capital accumulation and effecting a progressive redistribution of wealth copyright 2004 oxford university press

do the rich save more a new view based on intergenerational transfers do richer people have higher saving rates the short run and long run consumption functions have different answers to this important question which results in an important consumption puzzle that was a focus of macroeconomic research in the 1950s and 1960s in a recent empirical contribution dynan skinner and zeldes 2004 revive this old question and make this consumption puzzle more intriguing by showing that the average propensity to consume decreases not only with current income but also with lifetime income this paper provides a model that helps resolve this puzzle from an intergenerational perspective

wealth inequality and altruistic bequests this paper examines the role of bequests and inter vivos gifts in the u s economy considering their importance in determining i the economy s aggregate capital stock ii the distribution of private net worth and iii public policy outcomes and options it focuses on several recent calibrated simulations this abstract was borrowed from another version of this item

intergenerational transfers production and income distribution abstract we consider an overlapping generations economy where the aggregative production process uses physical capital and human capital intergenerational transfers from parents to their children are motivated by altruism we distinguish between two types of transfers investment of parents in the education of their offspring and capital transfer the gift bequest motive we show that the intensity of each type of altruism and hence the composition of the two types of transfers affect significantly the equilibrium output and the intragenerational income distributions comparing competitive equilibria from the same initial distributions of capital transfers and human capital we derive a the economy with the higher education inclined altruism attains lower output and more equal intragenerational income distributions if either the production function s elasticity of substitution is not large or the altruism is weak b for more bequest inclined altruism the effects are usually reversed c under public provision of education higher bequest inclined altruism results in lower output and less equal distribution of income in all dates

on the share of inheritance in aggregate wealth europe and the usa 1900 2010 this paper provides historical series on the evolution of the share of inherited wealth in aggregate private wealth in europe france the uk germany sweden and the usa over the 1900 2010 period until 1910 the inheritance share was very high in europe 70 80 it then fell abruptly following the 1914 45 shocks down to about 30 40 during the 1950 80 period and is back to 50 60 and rising since around 2010 the us pattern also appears to be u shaped albeit less marked and with significant uncertainty regarding recent trends due to data limitations we discuss possible interpretations for these long run patterns

failure vs displacement why an innovative anti poverty program showed no net impact in south india abstract we analyze a randomized trial of an innovative anti poverty program in south india part of a series of pilot programs that provide ultra poor households with inputs to create new sustainable livelihoods often tending livestock in contrast with results from other pilots we find no lasting net impact on income or asset accumulation in south india we explore concerns with program implementation data errors and the existence of compelling employment alternatives the baseline consumption data contain systematic errors and income and consumption contain large outliers steps to address the problems leave the central findings largely intact wages for unskilled labor rose sharply in the area while the study was implemented blunting the net impact of the intervention and highlighting one way that treatment effects depend on factors external to the intervention itself such as broader employment opportunities

the importance of bequests and life cycle saving in capital accumulation a new answer as the workhorse of consumption and saving research for the past four decades the life cycle model has proved flexible and useful for examining a variety of questions in a classic paper albert ando and franco modigliani 1963 p 56 stated a key assumption of the basic model t he individual neither expects to receive nor desires to leave any inheritance although the authors contended that the absence of a bequest motive was not critical to the heart of their results the assumption set off a long standing battle over the relative importance of different motives for saving in an influential study laurence kotlikoff and laurence summers 1981 estimated that a large fraction of the u s capital stock was attributable to intergenerational transfers modigliani and his collaborators vigorously disagreed and based on their own empirical work claimed that life cycle saving was the primary source of capital accumulation modigliani 1988 subsequent work has failed to reach a consensus since this debate began an important advance in the consumption literature has been the incorporation of uncertainty in life cycle models see e g r glenn hubbard et al 1995 we argue that allowing for uncertainty resolves the controversy over the importance of life cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished a dollar saved today simultaneously serves both a precautionary life cycle function guarding against future contingencies such as health shocks or other emergencies and a bequest function because in the likely event that the dollar is not absorbed by these contingencies it will be available to bequeath to children or other worthy causes under this view households have a bequest motive but bequests are given i e the motive is operative in only some states of the world wealth is something like traveler s checks you take them along on vacation just in case but odds are they will remain uncashed and available for sundry goods after the journey is complete we first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households declared focus on life cycle saving finally we consider implications of our analysis

defense spending in a neo ricardian world this paper shows that ricardian equivalence no longer holds once we recognize that govern ment acts as an intermediary between generations in the provision of national defence conse quently the level of public debt is positively related to defence spending since this component of government expenditures insures the transferability of bequests as well as protecting savings it is shown that defence spending has an adverse effect on both national saving and the saving rate that has not been considered in the economic growth literature more gener ally the paper emphasizes that in developing a positive theory of taxation the composition of government spending plays an integral role the separation of government expenditures from the methods used to finance them has been an extremely useful assumption employed in economics it has allowed economists to analyse a series of problems which would be much more difficult to study if individual taxpayers were assumed to perceive a link between the tax structure and the expenditure structure of an economy hettich and winer 1988 for example following this tradition develop a positive theory of a tax system this separation has been used most frequently and fruitfully to address the important question do fiscal deficits matter more specifically does the way that government finances its expenditures between taxing and issuing public debt matter in terms of their impact on the real economy barro 1974 employed an overlapping generations model with altruism to show that if individuals are not bequest constrained then government bonds are not perceived as net wealth the recipients of government transfers financed by bonds realize that their descendants will have to finance the debt through higher taxes and so they offset the increase in public debt by increas ing the size of the bequest to their children by the same amount the effect is that interest rates wages and the level of output of the economy are unaltered this result usually referred to as the ricardian equivalence theorem presented a challenge to the profession to find circumstances under which it would not hold and when therefore financing government spending with debt would

intergenerational wealth mobility and the role of inheritance evidence from multiple generations this study estimates intergenerational correlations in mid life wealth across three generations and a young fourth generation and examines how much of the parent child association that can be explained by inheritances using a swedish data set we find parent child rank correlations of 0 3 0 4 and grandparents grandchild rank correlations of 0 1 0 2 conditional on parents wealth grandparents wealth is weakly positively associated with grandchild s wealth and the parent child correlation is basically unchanged if we control for grandparents wealth bequests and gifts strikingly account for at least 50 per cent of the parent child wealth correlation while earnings and education are only able to explain 25 per cent

family transfers involving three generations most models of family transfers consider only two generations and focus on two motives altruism and exchange they also assume perfect substitution between inter vivos downward transfers and bequests based on french evidence we show that parent to child transfers belong to three distinct categories investment in child s education financial assistance wealth transmission and advocate a three generation framework thus transfer behavior of parents toward their children is strongly influenced by the behavior of their own parents there is also some evidence of the cox and stark demonstration effect parents help their own parents expecting to receive comparable support from their children such behavior can be regarded as indirect reciprocity the beneficiary does not give back to the initial giver but to a third person of another generation jel classification d10 d31 d63 d64

the role of bequests in shaping wealth inequality evidence from danish wealth records using danish administrative data we estimate the impact of bequests on the level and inequality of wealth we employ an event study design where we follow the distribution of wealth over time of people who are 45 50 years old and divided into treatment group and control group depending on whether a parent dies or not bequests account for 26 percent of the average post bequest wealth 1 3 years after parental death and significantly affect wealth throughout the distribution we find that bequests increase measures of absolute wealth inequality variance but reduce relative inequality top wealth shares following the receipts of bequests variance of the distribution censored at the top bottom 1 increases by 33 percent but the top 1 share declines by 6 percentage points from an initial level of 31 percent and the top 10 share declines by 10 percentage points from a base of around 81 percent

optimal growth with unobservable resources and learning abstract this paper examines the problem of choosing optimal resource consumption from an imperfectly observable aggregate capital wealth or resource stock which the decision maker learns about over time learning is complicated by the fact that the planner receives information about an object the true resource stock which is a moving target under the assumption that the utility of zero consumption is we show that the optimal policy follows a completely deterministic cautious or minmax policy that assumes the worst in each period and optimizes against that when this model is compared to a model with completely observable wealth levels the following insights are obtained 1 there is over saving 2 investment and output processes are more volatile than consumption and 3 regressions underestimate the risk aversion of agents information about the wealth or stock level is only valuable if it alters the support of the agent s beliefs thus information may be statistically informative yet economically valueless if information changes the support of the agent s beliefs then the optimal solution features an endogenous resource discovery process

the distribution of wealth with uncertain income it is well known that an uncertain income stream will induce individuals to save if they are forward looking in this paper we investigate the consequences of such saving on the distribution of wealth among households the inquiry is motivated by the fact that both the dispersion of the us wealth distribution and the variance of transitory income have increased in the recent past surprisingly we find that an increase in earnings uncertainty is more likely to decrease than increase the inequality in wealth holdings

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

two sex demographic models classical stable population theory the standard model of population age structure and growth is ill suited to addressing many issues that concern economists and demographers because it is a one sex theory this paper investigates the existence uniqueness and dynamic stability of equilibrium in the birth matrix mating rule bmmr model a new model of age structure and growth for two sex monogamously mating populations the paper shows by means of examples that the bmmr model can have multiple nontrivial equilibria and establishes sufficient conditions for uniqueness it generalizes a theorem of w brian arthur to nonlinear systems and uses it to establish sufficient conditions for local dynamic stability

college tuition and household savings and consumption abstract despite the high cost of college there has been little study of the adequacy of household savings and other resources available to fund college to gauge their adequacy this paper examines households standard of living as they pay for college using the consumer expenditure survey the main finding is that households appear to do a relatively good job smoothing their consumption into the academic year despite large expenses this is consistent with the life cycle theory of saving and consumption there is some evidence of a delayed decline in consumption and of a decline for households with children first beginning college but the magnitudes of these declines are rather small

inheritances intergenerational transfers and the accumulation of health research on inheritances has largely focused on the motives of the bequeathing regardless of the motivations of the giving generation prior to death wealth is transferred and this additional money may have an impact on the receiving generation in particular inheritances may be correlated with individuals health for several reasons first there may be a causal effect inheritances provide additional financial resources allowing recipients to purchase inputs to health and health care a large literature on socioeconomic status ses and health investigates the effect of financial resources on health second inheritances may signal the overall strength of a dynasty this dynastic strength would manifest itself in both better health and more ability to leave a bequest inheritances could be associated with better health because parents who will eventually bequeath wealth to their children may have disproportionately higher ses which improves the health outcomes of the children third bequests and a bequest motive may signal a stronger interest in one s child this reminder to the child could improve his emotional well being this paper

roads a utility in need of a strategy british roads are under supplied and irrationally priced estimates of the rate of economic return to investment are high there is no mechanism for consumer protection and current attempts to record and publish the level of service are inadequate this will persist until there is fundamental reform of the governance and possibly ownership of the major road network the paper argues that the uk regulated utility model offers valuable insights other candidates are discussed for reform of corporate governance accountability charging and funding a reformed charging regime designed to deal with road congestion and other externalities would also help with the carbon emission problem the paper discusses the division between central government new bodies to own and regulate the assets and local authorities even in the absence of direct user charging in the short term there is a case for change to enhance the accountability of the national roads infrastructure provider to its customers language en

pension wealth and individual saving some new evidence attemprs to measure the tmpact of soctal security and private pensions on household saving have occupied much of the literature in empirical public finance over the past decade empirical estimates of those impacts have been quite varied see the discussion in aaron 1982 this paper provides new estimates of the impact of changes in holdings of social security and private pension annuities on the level of non pension wealth the data examined are drawn from surveys conducted for the u s president s commission on pension policy the impact of the social security system on individual saving has been a concern since feldstein s 1974 pioneering paper l the theoretical argument of feldstein and of barro 1974 1978 centers around the funding status of social security i e the degree to which an unfunded social security system reduces private saving empirical tests of the effects of social security on saving in this line of research have been conducted in the perfect certainty version of the life cycle model modigliani and ando 1957 modigliani and brumberg 1954 in that approach social security affects non pension saving through its impact on individual intertemporal budget constraints disposable income during the working period falls by the amount of

intergenerational transfers and the accumulation of wealth h t ouseholds acquire wealth from two sources they save out of income they have earned and they receive transfers from other people the first method of wealth accumulation goes under the name of life cycle saving in which people save during their working lives and dissave after retirement the second involves either an inter vivos transfer that is a transfer between living people or a bequest a transfer that occurs at the death of the donor while inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well being of one s descendents few empirical life cycle models reflect these concerns indeed a sharp debate has arisen over the ability of the simple life cycle model to explain observed wealth accumulation understanding the relative sizes of these sources of wealth accumulation affects a variety of issues for example the effects of government debt social insurance public transfer programs estate taxes and incentives for charitable giving depend to some extent on the magnitude and nature of private saving and transfers of wealth analyses of the inequality of wealth may depend on whether most of wealth is earned or received as transfers appropriate policies for encouraging private saving may look rather different depending on whether most saving is to be consumed later in life or passed along to the next generation finally evidence on transfer patterns relates to more fundamental

wealth distribution and optimal inheritance taxation in life cycle economies with intergenerational transfers we introduce intergenerational transfers into a general equilihrium life cycle model in order to explain observed levels of wealth heterogeneity in our overlapping generations model heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their cinldren furthermore agents face stochastic employment opportunities the model is calibrated with regard to the characteristics of the us economy our resuits indicate that hequests onl account for a sniall proportion of ohserved wealth heterogeneitv the introduction of an inheritance tax increases both welfare are measured by the average value of the newborn and equality of the wealth distribution preliminary versions of this paper have been presented at conference on intergenerational transfers taxes and the distribution of wealth in uppsala 1999 and the econoinetric societv european meetirig in santiago dc compostela 1999 we would like to thank michael kaganovieli john laitner james smith frank stafford and carl cristian von weizsacker for comments on earlier versions of the paper all remaining errors are ours

liquidity constraints a cross section analysis of the housing purchase behavior of japanese this paper focuses on the existence of liquidity constraints on housing purchases by japanese households in order to assess the impact of liquidity constraints the author analyzes the housing purchase behavior of worker households which rent and in which the household head was under the age of forty five from the national survey of family income and expenditure compiled by the statistics bureau liquidity constraints emerge as the most important factor in determining housing purchase behavior copyright 1993 by mit press