comparative statics and asset substitutability complementarity in a portfolio model a dual approach this article uses a dual approach to investigate the properties of an n asset portfolio model the indirect expected utility and expenditure functions are used to provide an extremely simple derivation of slutsky equations by obtaining results similar to roy s identity and shephard s lemma the substitutability complementarity relations among assets are investigated and a number of empirically testable implications are deduced from the properties of the expenditure function

the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

product quality consumption externalities and the role of national treatment abstract article iii of the wto national treatment limits domestic policy in an effort to curtail protectionist discrimination against foreign products in this paper we examine the role of national treatment and prominent article xx exceptions when goods are vertically differentiated and generate consumption externalities we study the domestic policy choices of two countries first stage problem and quantity and price equilibria in two product markets second stage problem under a strict application of article iii and compare them to the policy choices and product market equilibria prevailing when countries can misrepresent external damages and discriminate while one may expect that high externalities would lead to a greater need for exceptions to equal treatment we show that this is often not the case and furthermore that non discrimination can lead to a cleaner world environment

debt maturity without commitment i analyze how lack of commitment afiects the maturity structure of sovereign debt governments balance beneflts of default induced redistribution and costs due to income losses in the wake of a default their choice of short versus longterm debt afiects default and rollover decisions by subsequent policy makers the equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that re ect the price impact of these decisions the model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high output low or a cross default more likely these predictions are consistent with empirical evidence

producer surplus and risk this paper examines the welfare economics of producer behavior under risk aversion hicksian marshallian and money equivalent measures are explored it is found that under decreasing absolute risk aversion compensating variation is less than the ordinary marshallian surplus which is less than the money equivalent measure under constant absolute risk aversion all measures coincide finally bounds on compensating and equivalent variations using ordinary producer surplus in a manner analogous to willige approach in consumer theory under certainty are studied similar results hold mutatis mutandis for input demands

pension reform and economic performance under imperfect capital markets we consider an overlapping generations model where heterogeneous agents take decisions on consumption and investment in education under the assumption of imperfect capital markets we study how the introduction of a pay as you go and of a fully funded pension scheme affects output and lifetime opportunities and then analyse the impact of a pension reform the standard neutrality result for fully funded pension schemes does not hold in this framework we establish che conditions under which a fully funded scheme is associated with a higher investment in human capital we show that the transition path may involve poverty traps pension reform is nowadays one of the dominant issues in policy discussion and intervention in developing and transition economies as well as in western countries in eastern europe the process of conversion from centrally planned to decentralised market economies calls for a revision of social security systems problems of financial sustainability and equity towards future generations are the basis for the changes in the existing pension schemes of some western countries the choice of privatising social security undertaken by some developing countries see chile for instance is often referred to as the example to follow it is held that moving from public pay as you go pension schemes which nowadays represent the dominant organisational form for old age security to private fully funded ones would raise savings and eliminate factor market distortions therefore enhancing long term growth and welfare levels although the impact of social security on economic growth is the major concern emerging from policy discussion the limited direct application of economic literature to the analysis of the impact of old age security arrangements on growth shows that economic theory has not developed yet a set of tools suitable for this kind of investigation in this paper we restrict our attention to a particular aspect of this policy issue namely we address the following question what are the effects of a pension reform on lifetime opportunities and output to investigate this issue we first analyse the effects of the introduction of a pay as you go pension scheme and of a fully funded one on income levels and income distribution both in the short and in the long run we then proceed to discuss the impact on the same variables of the transition from a pay as you go pension scheme to

social security privatization a structure for analysis this paper identifies the key economic issues that must be addressed in the debate over a privatized social security system we examine a two pillar plan the first pillar would consist of a demogrant a small indexed pension of the same dollar amount for all retirees who had contributed to the system over a full lifetime of work the second pillar would consist of a fully funded individual defined contribution account financed by payroll taxes held in financial institutions and directed by participants we explore how such a system would affect the risks households face how it would alter the distribution of income and how it might influence household behavior including incentives to work and save and portfolio choices we also examine macroeconomic issues how the transition to a private plan would occur and what the likely effects would be on national saving we conclude that a two pillar system offers several positive features namely a reduction in political risk an increase in household portfolio choice and improved work incentives disadvantages include less redistributiveness and national risk sharing and increased administrative costs this abstract was borrowed from another version of this item

national and international privatisation of pensions abstract the paper analyses the switch from pay as you go to funded pensions pensions privatisation in a world with many small open economies it contrasts go it alone privatisation in one country with world wide privatisation in the go it alone case at least one generation necessarily loses in the world wide case the long run gains are substantially larger and depending on the nature of production technology an intergenerational pareto improvement is possible this generates a potential isolation paradox each country may individually reject privatisation because some people will lose but this need not happen if all privatised simultaneously this problem occurs because the adoption of payg pensions in any one country imposes international externalities on other countries via the impact on world interest rates

pollution havens endogenous environmental policy and foreign direct investment in an increasingly integrated world economy countries may have greater incentives to weaken environmental policy as disguised protection intended to give a competitive edge to local firms this may generate pollution havens as firms relocate in response to different environmental policies foreign direct investment fdi weakens profit shifting policy considerations while increasing environmental damages but at the same time may provide external benefits we derive conditions under which the fdi recipient country has an incentive to manipulate its environmental standard to prevent or attract fdi potentially eliminating or creating pollution havens in addition to examining the impact of fdi on the equilibrium state of the environment

the burden of proof in trade disputes and the environment the wto leaves discretion over environmental policies to its members but requests that a fundamental non discrimination principle is respected national treatment nt the provision seeks to prevent protectionist use of domestic policy instruments requesting that when an imported product is sufficiently similar to a domestic product they are treated identically wto adjudicators will often face severe informational problems in environmental disputes important for the practical implementation of nt is therefore the allocation of the burden of proof bop this paper highlights basic implications of the bop for the occurrence of judicial errors for the environment and for welfare using a setting where nt serves its intended role of supporting negotiated tariff liberalization the paper suggests that nt may indeed constrain environmental policies but that this may be desirable from an efficiency point of view also bop rules that benefit the environment may not benefit global welfare and conversely

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

on the role of retaliation in trade agreements this paper analyzes the role of retaliation in trade agreements it shows that in the presence of private information retaliation can always be used to increase the welfare derived from such agreements by the participating governments in particular it is shown that retaliation is a necessary feature of any efficient equilibrium we argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms of trade externalities within the current world trading system though in which transfers are seldom observed whereas export subsidies are prohibited the use of the remaining trade instruments in a retaliatory fashion might be optimal the model is used to interpret the retaliatory use of antidumping observed in the last decades and the proliferation of these measures relative to other trade remedies

the missing piece in policy analysis social security reform this lecture discusses the economic losses that result from an unfunded social security retirement system and the potential gain from shifting to a funded system the social security payroll tax distorts labor supply and the form in which compensation is paid although each individual s benefits are linked to that individual s previous payroll tax payments the low equilibrium rate of return inherent in an unfunded system implies a net payroll tax that causes distortions the resulting deadweight loss is 1 of each year s gdp in perpetuity an amount equal to 20 of payroll tax revenue and a 50 increase in deadweight loss of the personal income tax also there is the loss of investment income resulting from forcing employees to accept the low implicit return of an unfunded program rather than the much higher return paid on private saving or in a funded social security program the present value of the annual losses from using an unfunded system exceeds the benefit to those who received windfall transfers when the program began and when it expanded shifting to a funded program cannot reverse the crowding out of capital that has already occurred recognizing the existing unfunded obligation only makes that piece of the national debt explicit but shifting to a funded program limits crowding out of capital formation to the amount that already occurred future increases in annual saving that result from economic growth are able to earn the higher rate of return on real capital the present value of these gains is equivalent to a perpetuity of more than 2 of gdp a year the combi nation of improved labor market incentives and higher real return on saving has a net present value gain of more than 15 trillion an amount equivalent to three percent of each future year s gdp forever this abstract was borrowed from another version of this item

increasing returns and externalities in uk manufacturing myth or reality i apply the method of caballero and lyons to industry level data for uk manufacturing i find evidence for a positive external effect arising from the expansion of manufacturing as a whole but expansion at the sectoral level was found not to generate external effects nor was any evidence found for increasing returns which are internal to the industry here returns appear to be constant i argue that external effects at the level of aggregate manufacturing cannot be explained away as due to measurement error or cyclical effects however alternative explanations such as economy wide shocks cannot be totally excluded

nullity restrictions and comparative static analysis while homogeneity restrictions of optimal choice functions are well known in the context of neoclassical economic theory the existence and implications of homogeneity like restrictions in more general optimization models have not received much attention in the literature the authors call such restrictions nullity restrictions since they involve the null space of the matrix of slopes of choice functions the existence nature and implications of nullity restrictions are investigated in the context of a general optimization problem this contributes to closing a major gap in the analysis of the implications of optimization for economic behavior copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the politics of intergenerational redistribution this paper studies the political economic equilibrium of a two period model with overlapping generations in each period the policy is chosen under majority rule by the generations currently alive the paper identifies a politically viable set of values for public debt any amount of debt within this set is fully repaid in equilibrium even without commitments by issuing debt within this set the first generation redistributes revenue in its favor and away from the second generation the paper characterizes the determinants of the equilibrium intergenerational redistribution and identifies a difference between debt and social security as instruments of redistribution

welfare effects of unfunded pension systems when labor supply is endogenous abstract a mandatory unfunded pension system can lead to welfare losses if the contributions are levied in such a way that the labor supply decision of the individuals is distorted this is shown in an overlapping generations model for a closed economy furthermore it is shown that under certain conditions a gradual abolition of unfuded pensions using lump sum contributions in the transition phase can lead to an intergenerational pareto improvement thus the paper extends a result recently derived by homburg for a small open economy to the closed economy case

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

budget deficits and redistributive politics this paper proposes a new view of the forces in the political process that cause governments to accumulate debt the analysis builds on a model of redistributive politics that contrary to median voter models does not restrict the set of policies that politicians can propose i show that deficits occur even in an environment where voters and periods are homogeneous this is an environment where previous political theories of debt would predict budget balance in the model deficits are a way for candidates to better target promises to voters and are therefore used as tools of redistributive politics the main contribution of the analysis is to show that the same forces that push candidates to redistribute resources across voters to pursue political advantage are forces that generate budget deficits most countries have sizeable national debts indeed thinking of governments as debtors seems so customary that it feels awkward to talk about a national credit this suggests that there are systematic forces pushing governments to regularly borrow to cover the excess of spending over receipts at the same time a significant amount of government spending consists of transfers to special interest groups that are hard to justify on efficiency or equity grounds this paper presents a political economic model that suggests that these two phenomena are connected debt is at least in part caused by the fact that in order to get elected candidates need to appeal to groups of voters with promises of transfers debt allows candidates a finer control over the promises they make to these groups

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

national treatment in the gatt the national treatment nt clause is the first line defense in the gatt and in most other trade agreements against opportunistic exploitation of the inevitable incompleteness of the agreement this paper examines the role of nt as it applies to internal taxation under the gatt it is shown that despite severely restricting the freedom to set internal taxes nt may improve government welfare but it will not completely solve the incomplete contract problem it is meant to remedy furthermore it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

trade skirmishes and safeguards a theory of the wto dispute settlement process i propose a framework within which to interpret and evaluate the major reforms introduced to the gatt system in its transition to the wto in particular i examine the wto agreement on safeguards that has replaced the gatt escape clause article xix and the dispute settlement process dsp that resembles a court of law under the wto using this framework i interpret the weakening of the reciprocity principle under the agreement on safeguards as an attempt to reduce e ciency reducing trade skirmishes the dsp is interpreted as an impartial arbitrator that announces its opinion about the state of the world when a dispute arises among member countries i demonstrate that the reforms in the gatt escape clause should be bundled with the

privatizing social security at home and abroad a century has passed since otto von bismarck instituted the first social security system in germany since then government provision of retirement income has spread around the globe alleviating poverty among the elderly providing life span insurance via old age annuities overcoming the samaritan s dilemma by forcing everyone to save and in many countries extending coverage to include old age health insurance but for all the good it has done social security is severely limiting world saving investment and growth it threatens to bankrupt the young and future generations of some of the world s leading nations see jagadeesh gokhale et al 1996 it is the chain letter pay as you go method of financing social security that lies at the heart of the problem taking income from young savers and giving it to old spenders while placating the young with promises of repayment not only reduces national saving but straddles the next generation with the obligation the debt to meet these promises the size of these debts and the burden on the next generation will be much greater for countries with rapidly aging populations would privatization solve social security s problems this paper provides a framework for thinking about this issue

social security national policies with international implications social security policies within individual countries are determined independently by national governments but the resulting outcome is inefficient compared with what would result from the international co ordination of policies this is because national social security policies produce international externalities via their effects on world interest rates an illustrative example suggests that the gains from co ordination are potentially significant virtually all countries operate social security or redistributive policies each chooses policies independently and to my knowledge no one either in a policymaking context or in the large literature on international policy co ordination has suggested that such decisions would benefit from international coordination 1 however a simple argument suggests that independent national social security policies are inefficient more specifically in the long run national governments make policy decisions which are too egalitarian this holds provided that social security lowers national saving in this case each national government faces a trade off between income redistribution and national saving and can be assumed to locate at the nationally optimal point on this trade off taking as given the world interest rate the latter is clearly not independent of the combined effect of all countries policies however if all countries expand social security the resulting fall in world saving will raise the world interest rate with adverse consequences for each national economy each country rationally ignores its own small contribution to the global outcome if this international externality were internalised by co ordination countries would relocate on the trade off between income redistribution and national saving demonstrating the existence of an externality says nothing about its quantitative significance i address this with an example which focuses on pay as you go payg retirement pensions in an economy with a mixture of forward looking and myopic individuals the pensions prevent destitution among retired myopes and thus effectively redistribute life time welfare but they also lower saving because of payg financing for all parameter values considered international co ordination of pensions policy decisions generates welfare gains which are larger for many parameter values substantially larger than recent estimates of the welfare gains from either the entire elimination of all cyclical fluctuations or the reduction of inflation and nominal interest rates from suboptimally high to optimal levels hence the issues addressed in the paper are quantitatively significant when judged against other frequently advocated i am grateful to two anonymous referees for helpful comments on earlier versions they are not responsible for the present version

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

shoe leather costs reconsidered lucas has recently suggested that the shoe leather costs of inflation may amount to as much as 1 of gnp in the united states when moving to the friedman optimum we assess his thesis using empirical evidence for the united kingdom over the period 1870 1994 we find support for lucas proposition that interest rates should be specified in logs as a description of money demand dynamics but not as a steady state characterisation although lucas estimates can be corroborated a semilog interest rate specification implies smaller though still tangible welfare gain estimates for example 0 22 of gnp in perpetuity when moving from 6 to 2 nominal interest rates

national treatment at the wto the roles of product and country heterogeneity this paper analyzes the world trade organization s wto s national treatment nt clause in a two country model where quality of goods and or market size are heterogenous across countries when market size is symmetric across countries a reciprocal nt agreement i benefits the high quality country ii hurts the low quality country and iii delivers higher aggregate world welfare however such an agreement can arise in equilibrium if the high quality country s market is relatively bigger and the quality gap between goods is small i e goods are sufficiently alike the qualitative nature of these results does not change when quality is endogenously determined

current account solvency and the feldstein horioka puzzle in this paper we suggest an alternative explanation of the high cross section association between shares of saving and investment in gdp which feldstein and horioka 1980 interpret as evidence of low capital mobility in oecd countries saving and investment shares appear to be i i we show that a solvency constraint implies that the current balance is stationary and thus that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility it is this long run relation that the fh cross section regression captures econometric results for 23 oecd countries over the 1960 92 period are consistent with this explanation

national treatment and the optimal regulation of environmental externalities we analyze the role of national treatment in the regulation of environmental product standards for an open economy a social planner uses product standards to control emissions from the consumption of a traded good we show that whether national treatment of standards interferes with welfare maximizing policy depends on the instruments available to the policy maker consumption or emissions tax and differences in the cost of complying with the standard we also highlight the asymmetric incidence of the domestic and import product standard when taxes are suboptimal this asymmetric incidence can also cause welfare maximizing policy to violate national treatment on analyse le role du principe de traitement identique des entites domestiques ou importees dans la reglementation des normes environnementales dans une economie ouverte un gouvernement utilise des normes pour controler les emissions decoulant de la consommation d un produit transige internationalement on montre que le fait que le traitement identique des normes va ou non interferer avec l objectif poursuivi qui est de maximiser le niveau de bien etre va dependre de l ensemble des instruments disponibles pour l architecte des politiques une taxe sur la consommation ou sur les emissions et des differences dans les couts a encourir pour se conformer aux normes on souligne aussi l incidence asymetrique des normes sur les produits domestiques et importes quand les taxes sont sous optimales cette incidence asymetrique peut faire que la politique qui vise la maximisation du bien etre soit en violation du principe de traitement identique

the effects of annuities bequests and aging in an overlapping generations model of endogenous growth we examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth the complete annuitisation of agents wealth is not in general dynamically optimal the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay as you go social security tax rate the government has an incentive to restrict the availability of actuarially fair annuities contracts and can often move the economy from a pay as you go to a fully funded social security system via voluntary contributions to a government sponsored actuarially fair pension today accompanied by reductions in social security taxes tomorrow

different approaches for dealing with social security he u s social security system is a government pension program financed by worker payroll taxes as workers pay in their payroll taxes they accumulate credits toward benefits in the language of pensions this is a defined benefit plan at any point in time one can project tax inflows and benefit outflows based on various economic and demographic assumptions and determine the long run actuarial soundness of the system or to put it another way determine whether the present set of tax and benefit schedules will be consistent in the long term every year such forecasts are made by the social security and medicare trustees now three cabinet officers the commissioner of social security and two outside members social security and medicare boards of trustees 1995 every four years a quadrennial advisory council is appointed to review these forecasts and to comment on relevant policy issues in the past many of these councils have had important impacts on social security policy for example the 1983 greenspan commission proposed a number of measures that saved the system from imminent financial difficulty and the 1975 council recommended changing procedures that had until then led to overindexation of social security for inflation another advisory council was formed in 1994 and i was asked to chair it it also included three members from business three from unions and six others from the private pension industry the self employment sector and independent

trading rules and the environment does equal treatment lead to a cleaner world abstract in this paper we consider a three stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform most favored nation mfn tariffs on countries choice over environmental standards for varying degrees of pollution spillovers because of the presence of punishment effects and stronger own and cross tariff effects we find that discrimination yields higher standards than mfn and free trade independently of the extent of pollution spillovers when pollution is local and incentives to free ride on other countries abatement efforts are weak we show however that welfare is larger under mfn than under discrimination in a dynamic setting we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement iea and obtain that multilateral cooperation is easier to sustain under discrimination than under mfn or free trade

the effect of distributive goals on the time inconsistency of optimal taxes abstract in the context of a two period n consumer model of optimal wage and interest taxation this paper asks whether the government s distributive goals can inhibit its incentives to renege on its announced policies inconsistent interest tax increases may be moderated by distributed goals if they create an unacceptable utility distribution in the economy this result is developed for a general case its implications for welfare and savings are illustrated with numerical examples

aging pension reform and capital flows a multi country simulation model we present a quantitative analysis of the effects of population aging and pension reform on international capital markets first demographic change alters the time path of aggregate savings within each country second this process may be amplified when a pension reform shifts old age provision towards more pre funding third while the patterns of population aging are similar in most countries timing and initial conditions differ substantially hence to the extent that capital is internationally mobile population aging will induce capital flows between countries all three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply in order to quantify these effects we develop a computational general equilibrium model we feed this multi country overlapping generations model with detailed long term demographic projections for seven world regions our simulations indicate that capital flows from fast aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings we also conclude that closed economy models of pension reform miss quantitatively important effects of international capital mobility this version 25 august 2004

precautionary saving and accidental bequests this paper presents a simple general equilibrium model of precautionary saving and accidental bequests this model is used to analyze the implications of individual lifetime uncertainty for aggregate consumption and capital accumulation a precautionary demand for saving arises because an individual consumer does not know in advance the date at which he will die and he wants to avoid low levels of consumption in the event that he lives longer than expected an implication of this precautionary saving is that when death does occur the consumer is generally holding some wealth which is then passed on to his heirs in the form of an accidental bequest even if all consumers have the same ex ante mortality probabilities there will be some intracohort variation in the date of death consequently there will be a nondegenerate distribution of bequests left by consumers in a cohort this nondegenerate distribution of bequests left by one generation induces variation in the distributions of wealth consumption and bequests of subsequent generations the importance of bequests in aggregate saving has been established by laurence kotlikoff and lawrence summers 1981 who reported that 80 percent of u s household wealth is inherited wealth one interpretation of this finding is that the simple life cycle model without bequest motives is an inadequate description of saving behavior in the united states but the model i present demonstrates that accidental bequests by selfish consumers can account for a potentially sizeable fraction of aggregate wealth although some part of bequests especially by the wealthy undoubtedly results from an explicit bequest motive accidental bequests also play a role in the intergenerational transfer of wealth as well as in the intragenerational variation in wealth in order to focus on the role of accidental bequests i purposely exclude a bequest motive from the specification of the utility function the effects of lifetime uncertainty on individual consumption behavior were first examined formally in a seminal paper by menachem yaari 1965 yaari s model provided the basic framework for virtually all subsequent work on uncertain lifetimes including well known papers by nils hakansson 1969 stanley fischer 1973 robert barro and james friedman 1977 david levhari and leonard mirman 1977 and kotlikoff and avia spivak 1981 however all of these papers focused on the consumption decision of an individual and ignored the effect of accidental bequests on the behavior of the recipients of these accidental bequests 2 as will be shown at various points in this paper changes in the economic environment can have effects on aggregate behavior which differ sharply from the effects on individual behavior because of the endogenous adjustment of bequests the effects of department of economics harvard university cambridge ma 02138 this paper is a revised version of bequests and social security with uncertain lifetimes nber working paper no 1372 june 1984 i thank olivier blanchard john burbidge christopher cavanagh robert clower stanley fischer benjamin friedman elhanan helpman mervyn king nobuhiro kiyotaki laurence kotlikoff robert mcdonald james pesando julio rotemberg lawrence summers lars svensson mark watson and jeffrey wolcowitz for valuable conversations and correspondence i also thank the participants in seminars at boston university columbia university cornell university federal reserve board harvard university university of iowa mit university of minnesota university of montreal national bureau of economic research north carolina state university the wharton school and yale university and two anonymous referees for their helpful comments i also thank the national science foundation for financial support 1 in the presence of perfect annuity and life insurance markets there may or may not be bequests depending on the presence or absence of a bequest motive but there would be no accidental bequests 2 kotlikoff and spivak focus on the role of the family in providing an incomplete annuities market but stop short of a full scale overlapping generations model in which the distribution of bequests is determined endogenously

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

why is capital so immobile internationally possible explanations and implications for capital income taxation the evidence on international capital immobility is extensive including the lack of international portfolio diversification real interest differentials across countries and the high correlation between domestic savings and investment the authors develop a model with asymmetric information between countries that helps rationalize all the above observations and then examine the implications of this model for optimal domestic tax policy without asymmetric information past work showed that small open economies should not impose corporate income taxes with asymmetric information the optimal policy instead involves government subsidies to capital imports some omitted factors that argue against subsidizing capital imports are explored briefly copyright 1996 by american economic association

does international coordination of pension policies boost capital accumulation within an olg framework we study a perfectly balanced pay as you go payg pension scheme in spite of its depressive impact on national saving payg is implemented for operating intergenerational transfers with international capital mobility the national adoption of payg determines a spill over effect through the world capital stock this creates a situation of interdependence among national pension policies that we model as a n countries dynamic game in contrast with previous literature it is shown that in general the international coordination of pension policies does not boost world savings and capital accumulation