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

long term growth and short term economic instability when learning by doing is at the origin of growth the long run growth rate should be negatively related to the amplitude of the business cycle if human capital accumulation is increasing and concave in the cyclical component of production empirical evidence strongly supports this nding for industrialized countries and european regions using the standard control variables we nd that countries and regions that have a higher standard deviation of growth and of unemployment have lower growth rates the result does not come from an e ect of instability on investment the negative relation however does not hold for non industrialized countries for which learning by doing may not to be the main engine of growth 2000 elsevier science b v all rights reserved jel classixcation o40 e32

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

economic development and the family structure from the pater familias to the nuclear family we provide a theory that is able to account for the observed comovement between the shift in intergenerational living arrangements from coresidence to non coresidence and economic development our theory is consistent with the diminution in the status of the elderly documented by some sociologists the results from our analysis show that when technical progress is fast enough the economy experiences a shift from stagnation to growth there is a transition from coresidence to non coresidence and the social status of the elderly tends to deteriorate

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

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

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

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

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

operative gift and bequest motives the ricardian equivalence theorem which is the proposition that changes in the timing of lump sum taxes have no effect on assumption or capital accumulation depends on the exist of operative altruistic motives for intergenerational transfers these transfers can be bequests from parents to children or gifts from children to parents in order for the ricardian equivalence theorem to hold one of these transfer motives must be operative in the sense that the level of the transfer is not determined by a corner solution resulting from a binding non negativity constraint this paper derives conditions that determine whether the bequest motive will be operative the gift motive will be operative or neither motive will be operative in a model in which consumers are altruistic toward their parents and their children this abstract was borrowed from another version of this item

new evidence on altruism a study of tiaa cref retirees this paper investigates the role in household wealth accumulation of saving for bequests it employs data from a 1988 survey of tiaa cref annuitants designed to measure pension and other net worth as well as lifetime earnings about half of the households in the data plan to leave estates and the authors find that their behavior conforms with theoretical altruistic models for the same families the amount of wealth that the authors attribute to estate building is large nevertheless altruism towards one s children does not seem to be the major explanation of saving in the overall sample copyright 1996 by american economic association

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

optimal monetary policy with an uncertain cost channel the cost channel of monetary transmission describes a supply side effect of interest rates on firms costs previous research has found this effect to vary both over time and across countries moreover the cyclical nature of financial frictions is likely to amplify the cost channel this paper derives optimal monetary policy in the presence of uncertainty about the true size of the cost channel in a min max approach the central bank derives an optimal policy plan to be implemented by a taylor rule it is shown that uncertainty about the cost channel leads to an attenuated interest rate setting behavior in this respect the brainard 1967 principle of cautious policy in the face of uncertainty continues to hold in both a bayesian and a min max framework

the problem of population and growth a review of the literature from malthus to contemporary models of endogenous population and endogenous growth abstract this paper deals with the evolution of the literature on the problem of population and growth from the classical period to the recent literature on endogenous growth and development the problem concerns two distinct issues 1 how to explain the observed covariation of the levels and rates of growth of per capita income and population size over time and space and 2 how to improve the human condition represented by these variables through an accommodating social policy the evolution of the literature we survey is reflected by the progressive treatment of key variables as endogenous rather than exogenous to the growth process it is also reflected by a shift from the historical concern about population explosion and its implications for growth to the more recent concern about the association between growth and population implosion in many developed countries

intergenerational transfers and savings in recent years the role of intergenerational transfers in the process of wealth accumulation has been the subject of substantial empirical and theoretical analysis the key question stimulating this research is what is the main explanation for savings is it primarily accumulation for retirement as claimed by albert ando richard brumberg and franco modigliani in their celebrated life cycle model of savings is it primarily intentional accumulation for intergenerational transfers or is it primarily precautionary savings much of which may be bequeathed because of imperfections in annuity markets this paper examines a range of findings on the importance of intergenerational transfers the strong conclusion that emerges from this evidence is that intergenerational transfers play a very important if not a key role in aggregate wealth accumulation while intergenerational transfers figure very large in savings the precise motivation for such transfers is unclear intergenerational altruism might appear the most likely candidate but at least sane stylized facts such as the equal allocation of bequests among children are strongly at adds with the altruism model other explanations involving imperfect insurance arrangements or payments for child services do not appear capable of explaining the substantial amounts of transfers actually observed sorting cut the relative contributions of different models to intergenerational transfers and the precise role of intergenerational transfers in the process of wealth accumulation remains an intriguing and exciting enterprise this abstract was borrowed from another version of this item

the real interest rate a multi country empirical study how real interest rates behave over time is critical to our understanding of many macroeconomic issues and much recent research has pursued this question very little of the research however has focused on real interest rates outside the united states this paper is an empirical exploration of real interest rate movements in seven oecd countries from 1967 ii to 1979 ii further research is needed on real rates in other countries for several reasons not only are measures of foreign real rates of interest in their ownright but extending an analysis of real rates to other countries also has the following additional benefits it can generate more powerful statistical tests of propositions previously tested on u s data and yield information on whether results found for the u s hold up in other countries this study pursues several questions that have arisen naturally from this earlier work is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries does the real rate decline with increased inflation and money growth in other countries besides the united states how reliable is the fisher effect in which nominal interestrates reflect changes in expected inflation are movements in nominal interest rates a reliable indicator of movements in real rates what kind of variationsin real interest rates are there in different countries have real rates declined from the 60s to the 70s for other countries besides the u s this abstract was borrowed from another version of this item

a note on international real interest rate differentials abstrac t this note empirically examines the issue of real interest rate equalization across countries the equality of real interest rates is implied by two frequently employed concepts of equilibrium in international asset capital and commodity markets and imposes certain time series restrictions on ex post real interest rates statistical tests of these restrictions strongly reject the hypothesis that real interest rates have been equal across countries

intergenerational trade longevity and economic growth we develop an overlapping generations model of endogenous growth in which human capital is the engine of growth and the generations are linked through material and emotional interdependencies within the family parents invest in their children to achieve both old age support care and emotional gratification and material support from children is determined through self enforcing implicit contracts we show that optimal intergenerational trade can then lead to maximization of growth opportunities our model produces a theory of the demographic transition linking longevity fertility and economic growth we also show that while population aging may raise the growth rate an increase in young age longevity is likely to produce a greater increase in the growth rate and a reduction in the fertility rate in a growth equilibrium these predictions and the model s implications concerning the behavior of private savings during the takeoff period appear consistent with empirical evidence

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

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

mortality decline human capital investment and economic growth abstract we examine the role of increased life expectancy in raising human capital investment during the process of economic growth we develop a continuous time overlapping generations model in which individuals make optimal schooling investment choices in the face of a constant probability of death we present analytic results followed by results from a calibrated version of the model using realistic estimates of the return to schooling mortality decline produces economically significant increases in schooling and consumption allowing schooling to vary endogenously produces a much larger response of consumption and capital to mortality decline than is observed when schooling is held fixed

from malthus to modern growth can epidemics explain the three regimes we model demographic and economic long run development in a setting where mortality is endogenous and subject to epidemic shocks the model replicates the full transition from malthusian stagnation to modern growth consistent with the historical facts the economy also passes an intermediate post malthusian phase where growth rates of both population and per capita income increase simultaneously as mortality rates fall and become less volatile the escape from the malthusian trap is the result of a series of mild epidemic shocks making it inevitable at some stage but its timing random calibrations show that it can differ by thousands of generations absent differences in exogenous parameters

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

population technology and growth from malthusian stagnation to the demographic transition and beyond this paper develops a unied growth model that captures the historical evolution of population technology and output it encompasses theendogenous transitionbetween three regimes that have characterized economic development the economy evolves from amalthusianregime wheretechnologicalprogressis slow andpopulationgrowthprevents anysustainedriseinincomepercapita intoapost malthusianregime wheretechnological progress rises and population growth absorbs only part of output growth ultimately a demographic transition reverses the positive relationship between income and population growth andtheeconomyentersamoderngrowthregimewithreducedpopulationgrowth

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

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

bequest motives social security and economic growth junxi zhang this article conducts a systematic analysis of four bequest motives in a simple model of endogenous growth it analyzes how bequest motives affect fertility savings growth and the effects of pay as you go social security it is found that altruistic and exchange motives give equivalent outcomes if the discount factors are set the same the outcome under the joy of giving motive may involve a higher bequest ratio higher saving and better growth rates than that under altruism if bequests are accidental the equilibrium values will depend on the probability of survival moreover the results provide testable implications on bequest motives jel d1 d9 h55 j1 i introduction although the importance of bequests in aggregate savings has been established by kotlikoff and summers 1981 who reported that 80 of u s household wealth is inherited wealth what bequest motives lead to inheritance remains an unsolved problem yet it is well known that bequest motives have important implications for the behavior of financial markets the macroeconomic impacts of fiscal policies and the intergenerational transmission of inequality in the distribution of wealth at least four hypotheses for the existence of bequests have been discussed in the literature 1 bequests may arise from intergenerational altruism that is parents obtain utility from their heirs utility as well as from their own consumption barro 1974 2 the prospect of bequests is used by parents to induce children to behave as desired by parents bernheim et al 1985 3 bequests may arise from the joy of giving that is parents leave bequests simply because they obtain utility directly from the bequest yaari 1964 1 and 4 bequests may be the unintentional by product of precautionary savings and a stochastic date of death in the absence of an annuity market abel 1985 following barro 1974 and becker 1974 the altruistic bequest motive has been used most frequently however the enormous empirical work using micro data has not led to conclusive evidence on the one hand bernheim et al 1985 cox 1987 and cox and rank 1992 show that bequests are more consistent with exchange than altruism altonji et al 1992 1997 also show that altruism is decisively rejected moreover wilhelm 1996 finds little support for an altruistic theory of bequests on the other hand a recent reexamination of the exchange motive by perozek 1998 shows that the finding of bernheim et al is not robust laitner and juster 1996 find some evidence of altruistic bequests therefore a definite conclusion on bequest motives seems far from over indeed though altruism has not been supported by most of those empirical studies it remains a plausible hypothesis and continues to be used frequently see e g coate 1995 and davies and zhang 1995 abel 1985 argues theoretically that although the simple life cycle model without bequest motives is an inadequate description of the savi ng behavior in the united states as found in kotlikoff and summers 1981 accidental bequests by selfish consumers can account for a sizable fraction of aggregate wealth however little formal empirical work has been done to test whether bequests are accidental or arise from joy of giving given the lack of consensus on bequest motives it is interesting to conduct a systematic theoretical analysis of different bequest motives in a particular context becker et al 1990 and caballe 1995 assume altruism in their models of economic growth wiedmer s 1996 analysis of social security and growth does not consider bequests except ihori 1994 there seems to be no analysis of other bequest motives in the context of economic growth the purpose of this article is to analyze how different bequest motives affect fertility savings and economic growth the article will also examine how the effects of pay as you go social security depend on bequest motives

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

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