bequests gifts and social security this paper analyses the very long run or stationary state impact of an unfunded social security system we use an overlapping generations model framework a key feature is that while parents care about their children and can leave non negative bequests to them children also care about their parents and can make non negative gifts to them we show that the possibility of negative net bequests may make social security less harmful to private wealth accumulation than would otherwise be the case a subsidiary finding is that risk loving behaviour may emerge for some households due to the nature of intergenerational transfers within family lines

demographics productivity growth and the macroeconomic equilibrium i introduction the demographics in the united states are as in other industrial countries experiencing drastic changes the birth rate is falling while life expectancy is rising as a consequence the ratio of the elderly to the working age population is projected to rise sharply in the next fifty years the aging of the population imposes both real and imagined burdens on the economy aaron 1990 most importantly it is predicted to cause substantial increases in the tax rates needed to sustain existing social security benefits thereby bringing about an increase in conflict between the working and the elderly generations wildasin 1991 von weizsacker 1990 and verbon 1988 population aging also means it is more likely that the pay as you go system of financing social security will be dynamically inefficient hu 1993 in this case the economy is better served by switching to another financing system indeed a number of countries most notably chile have chosen to privatize their state pension systems more broadly there is evidence that the changing age distribution in the u s population has significantly affected consumption housing investment money demand and the labor force participation rate fair and dominguez 1991 and is potentially very important for explaining the u s rate of national saving for the next fifty years auerbach and kotlikoff 1990 it also affects capital accumulation by causing changes in family insurance and intergenerational trade ehrlich and lui 1991 existing studies of the economic effects of demographics assume either that both work hours and retirement behavior are exogenous or that work hours are endogenous but retirement behavior is exogenous for example cutler poterba sheiner and summers 1990 model the labor market effects of population aging by imposing the projected age distributions on the current labor force participation rates across age cohorts rather than on those corresponding to the projected demographics as such they implicitly assume exogenous work hours and concentrate on the age distribution effect of population aging auerbach and kotlikoff 1990 set an exogenous retirement age of sixty five although they allow endogenous determination of work hours feldstein 1980 provides evidence that incorporation of induced retirement improves the prediction of how social security affects capital accumulation likewise studies of the effects of demographic changes and their interactions with social security will be more fruitful if retirement decisions are explicitly recognized this is particularly true since the 1983 amendment to the social security act would gradually relax the retirement test thus removing the distortions that prevent retirement decisions from adjusting to changing demographics this paper provides a computational study of the effects of demographics on the macroeconomic equilibrium and welfare within the framework of an intertemporal optimizing model with age heterogeneity and endogenous productivity growth the model extends tobin 1967 and cass and yaari 1967 to allow for endogenous retirement decisions it differs from hu 1978 1993 in that it incorporates endogenous productivity growth a key feature that differentiates this analysis from previous studies is that retirement decisions are characterized by a binary choice of whether to work or not to work but work hours are exogenous during working years 1 to facilitate comparisons we also provide a simulation which shows what would happen if social security provisions were such as to prevent the retirement age from adjusting to the demographic changes to study the effects of demographics on the macroeconomic equilibrium involves explaining their effects on the labor force participation rate and aggregate consumption their interactions with social security and their implications for the welfare of the economy

a model of longevity fertility and growth abstract economic and demographic outcomes are determined jointly in a dynamic general equilibrium model of longevity fertility and growth reproductive agents in overlapping generations mature safely through two periods of life and face an endogenous probability of surviving for a third period given this probability each agent maximises her expected lifetime utility by choosing consumption and the number of children child bearing is costly in the sense that time must be spent on child rearing activities rather than on production or education the model produces multiple development regimes which yield different predictions about life expectancy fertility timing of births and educational investment depending on initial conditions these predictions accord strongly with the empirical evidence on demography and development

a reexamination of the strategic bequest motive this paper investigates the strength of the empirical evidence of the strategic bequest hypothesis proposed by bernheim shleifer and summers 1985 at issue is whether bequests are primarily motivated by a desire to influnce the behavior of potential beneficiaries alternatively bequests may be motivated by altruism or risk aversion in the presence of incomplete annuity and health insurnace markets e g tomes 1981 hurd 1989

do taxes affect corporate debt policy evidence from us corporate tax return data abstract this paper uses u s statistics of income soi corporate income tax returns balance sheet data on all corporations to estimate the effects of changes in corporate tax rates on the debt policies of firms of different sizes small firms face very different tax rates than larger firms and relative tax rates have also changed frequently over time providing substantial information to identify tax effects the results suggest that taxes have had a strong and statistically significant effect on debt levels for example cutting the corporate tax rate by ten percentage points e g from 46 to 36 holding personal tax rates fixed is forecast to reduce the fraction of assets financed with debt by around 3 5 since small firms normally rely much more heavily on debt finance yet face much lower tax incentives to use debt the estimated effect of taxes would be strongly biased downwards without controls for firm size

business cycle models with endogenous technology this paper compares real and monetary business cycle models with and without endogenous technical change if technology is endogenous the properties of these models change significantly in particular both real and monetary models yield very similar output processes if growth is endogenous and changes in aggregate demand can result in permanent changes in productivity employment and output the effect of depreciation of technology is examined and the pattern of real wage movements over the cycle when money wages are fixed but technology is changing is briefly considered copyright 1990 by american economic association

fertility choice land and the malthusian hypothesis in a standard overlapping generations growth model with a fixed amount of land and endogenous fertility the competitive economy converges to a steady state with a zero population growth rate and positive consumption per capita the malthusian hypothesis is interpreted as a positive statement about the relationship between population growth and consumption per capita when production exhibits diminishing returns to labor and there is a fixed amount of land essential for production even when individuals care only about the number of their children and not about their children s welfare the equilibrium is such that they eventually would choose to have only one child for each adult hence if malthus s positive check on population is the result of the response of optimizing agents to competitively determined prices malthus s pessimistic conjecture is not necessarily true even though his other assumptions hold from authors

economic growth with intergenerational altruism in this paper we study the properties of equilibria in an aggregative growth model with intergenerational altruism in this model each generation is active for a single period at the beginning of this period it receives an endowment of a single homogeneous good which is the output from a bequest investment made by the previous generation it divides the endowment between consumption and investment the return from this investment constitutes the endowment of the next generation each generation derives utility from its own consumption and that of its immediate successor however since altruism is limited in the sense that no generation cares about later successors the interests of distinct agents come into conflict models of this type have been used to analyze a number of issues concerning intergenerational altruism one line of research pursued by arrow 1973 and dasgupta 1974a elucidates the implications of rawls principle of just savings others beginning with phelps and pollak 1968 have addressed the question of how an altruistic growth economy might actually evolve over time topics of subsequent investigation have included the efficiency and optimality of equilibrium programs and the implications of intergenerational altruism for the distribution of wealth unfortunately the positive features of equilibrium programs have received little attention from previous authors aside from a few comments by kohlberg 1976 virtually nothing is known about the asymptotic behaviour of capital stocks in these models in particular will the long run capital stock which arises from intergenerational conflict be higher or lower than the turnpike associated with the solution to the optimal planning problem on a priori grounds the answer is not clear agents who take only a limited interest in the future will tend to bequeath less than those who are far sighted however since each generation views its children s bequest as pure waste it must bequeath a larger sum to obtain the same consumption value in this paper we obtain steady state results for equilibrium capital stocks completely analogous to the well known optimal planning results by comparing steady states we

dynamic efficiency in the gifts economy abstract in the standard analysis of overlapping generations economies with gifts from children to parents each generation takes the actions of other generations as given the resulting equilibrium is dynamically inefficient in reality however parents realize that children will respond to higher parental saving by reducing gifts for a broad class of gift economies this implicit tax on saving pushes the equilibrium to dynamic efficiency this result reestablishes the potential relevance of the gift model to the us economy renders moot an important part of the ricardian equivalence debate and provides a motivation for a type of social security system

longevity and economic growth in a dynastic family model with an annuity market abstract this paper investigates the growth implication of rising longevity in a dynastic family model with an annuity market we show that rising longevity raises life cycle savings human capital investment labor supply and the growth rate of per capita income

mortality decline and long run economic growth this paper examines the impacts of mortality decline on long run growth in a dynastic family two sector growth model with social security a rise in longevity has direct effects on fertility human capital investment and growth as well as indirect effects through increasing unfunded social security contributions both the direct and indirect effects depend on the relative strength of the tastes for the number and welfare of children and may have different signs the net effects of rising longevity on fertility tend to be negative but positive on human capital investment and growth c 2001 elsevier science s a all rights reserved

an institutional economic analysis of the decision to do it yourself in housing renovation this paper examines home renovators decision in choosing do it yourself diy or hiring contractors diy may reduce financial pressure but may lead to potential domestic discord and perils of incompetence hiring contractors may alleviate time pressures but may require more financial resource this choice is modelled as analogous to williamson s corporate strategic decision between outsourcing and internalisation in the context of vertical integration and extended via richardson s capabilities based theory with social reputation effect taken into account based on a survey of brisbane home renovators it is found that the richardson s thesis seems stronger than the williamson s when applied to housing renovation and that trust issues in respect of contractors are paramount

capital accumulation income distribution and endogenous fertility in an overlapping generations general equilibrium model abstract this paper studies the intertemporal relationships among population growth income distribution inter generational social mobility skill composition of the labor force and household income in an overlapping generations general equilibrium model that aggregates household decisions regarding fertility savings and investment in human capital of children it shows that as a consequence of endogenous fertility the equilibrium path attains steady state from the second generation income tax transfer child taxation and social security taxation policies that can be devised to affect these variables are also analyzed the model provides a structural explanation for the inverse household income child quantity and negative child quality quantity relationships that are observed in developing countries it also shows that group interests may hinder the emergence of perfect capital markets with private initiatives

the existence of perfect equilibria in a model of growth with altruism between generations an intertemporal model of consumption and bequest behaviour is specified and analysed as a game between generations the main feature of this game is that no a priori restrictions like linearity are placed on the strategy choice of generations the paper gives an existence proof for perfect nash equilibria in finite and infinite horizon versions of the model and determines characteristic properties of equilibrium strategies the main result is to demonstrate existence of stationary perfect equilibrium if the time horizon is infinite

the old age security hypothesis revisited abstract children s altruism toward parents is allowed in a two overlapping generations model with endogenous fertility parents raise children because when retired they expect gifts from their children who are essentially a capital good individuals behavior between generations is examined by analyzing a nash equilibrium which is then compared with a social planner s optimal allocation the pay as you go public pension program is viewed as the optimal gifts from the optimal allocation when the latter is implemented the effect on fertility of the introduction of a capital market is also analyzed the validity of the old age security hypothesis is shown to depend on the parameters of utility and cost functions

social security and endogenous growth abstract this paper examines the effects of social security on the steady state growth of per capita income in an endogenous growth model in which agents care about their own consumption the number of children and the welfare of each child it shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive also it may cause faster growth than funded programs especially when receipts from funded programs are independent of contributions when voluntary saving is positive funded social security is neutral if receipts are linked to contributions and most likely depresses growth if receipts are independent of contributions

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

life expectancy and endogenous growth we consider an overlapping generations model with uncertain lifetime and endogenous growth individuals have to choose the length of time devoted to schooling before starting to work we show that it depends positively on life expectancy but that the positive effect of a longer life on growth could be offset by a decrease in the participation rate dynamics are characterized by a delay differential equation and human capital converges with oscillations to a balanced growth path

an econometric analysis of the old age security motive for childbearing a switching regression for birth interval lengths with endogenous switching is developed to test mead cains contention that parents fertility decisions arise from lexicographic preferences for old age security the model is estimated as a survival model using malaysian data assuming that contraceptors constitute the group of parents who have attained the minimal number of children with which they feel their old age support is secure strong support for cains concept of old age security as the principal interest of those parents who have not yet attained a sufficient number of children appears in these data however the income effect accompanying the provision of alternative means of old age support generates an ambiguous effect on subsequent fertility excerpt

endogenous fertility and optimal population size pareto optimality which is the standard criterion of efficiency in general equilibrium models takes population size as given and therefore cannot be directly applied to analyze the question of optimal population size the criterion then for optimal population size must be based on a more restrictive definition of optimality this paper extends peter diamonds 1965 golden golden rule growth model by assuming that individuals derive utility from their own consumptionand from their own children offspring are assumed to consume resources before reaching adulthood the authors show that the optimal steady state utility yields a higher population growth rate when it converges to the golden rule allocation they then demonstrate that a voluntary social security program in which the size of the transfer to a particular agent is directly tied to his own fertility leads the competitive allocation to be identical to the allocation corresponding to the maximum of the steady state utility of the representative individual

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

intergenerational transfers and demographic transition abstract this paper presents an analysis of demographic transition based on the endogenous evolution of intergenerational transfers along an economy s endogenous path of development two period lived agents belonging to overlapping generations choose optimally their desired levels of consumption and fertility together with their desired sizes of transfers to both parents and children parents are more efficient than children in producing output but some parental time must be devoted to child rearing at low levels of development fertility is high and the flow of net intergenerational transfers is from the young to the old at high levels of development fertility is low and the flow of net transfers is from the old to the young these results accord strongly with empirical observations and the analysis may be seen as formalising for the first time a long standing and well respected hypothesis in the demographic transition literature

social security intergenerational transfers and endogenous growth in this paper the effects of social security in a simple model of endogenous growth with alternative motives of having children are analyzed it shows how the effects of social security depend on the size of the social security tax the motive to have children and the pattern of intergenerational transfers the pattern of intergenerational transfers itself however is shown to change with the social security tax rate when the social security tax is not too high social security increases per capita income growth and tends to enhance welfare