the effects of fiscal policies when incomes are uncertain a contradiction to ricardian equivalence this paper shows that when future earnings are uncertain the substitution of deficit fin ance for tax finance or the introduction of an unfunded social secur ity program can raise consumption even if all bequests reflect inter generational altruism an operative bequest motive therefore need not imply ricardian equivalence this conclusion follows from the result derived in the paper that the uncertainty of future income makes t he existence of a future bequest uncertain to the prospective donor copyright 1988 by american economic association

earnings inequality among males in the united states trends and the effect of labor force growth we analyze the variance of log earnings within labor force cohorts of u s males with particular attention to the influence of labor force growth rates estimates with data from the 1968 79 current population surveys reveal increases in earnings inequality within labor force cohorts even after we control for the level of education experience and unemployment a model of human capital investment is used to analyze differences among cohorts in the life cycle profile of the variance of log earnings it is shown that a pattern of sharply increasing and then declining labor force growth rates will tend to raise the return on human capital investment and thereby increase the variance of postschooling investment and log earnings early in the life cycle this positive effect on relative earnings inequality should decline with experience and possibly become negative because of the post world war ii baby boom and baby bust recent labor force entrants have faced just such a pattern of actual and projected labor

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

the market value of outstanding government debt 1919 1975 abstract several new series on the market value of outstanding government debt are reported and their methods of construction described the new series on federal debt are compared with other existing estimates and are shown to be markedly superior to them

altruism and time consistency the economics of fait accompli this paper analyzes the strategic and intertemporal interaction between two economic agents who have overlapping concerns such as altruistic concerns for each other s welfare the agents may be two individuals a social bureau and a client or two units in an organization we show how the presence of such common concerns may lead to socially inefficient outcomes in which one economic agent free rides on the other s concern we also briefly how this inefficiency and free riding in the context of interaction between individuals might be mitigated by compulsory social security systems as another example we interpret the inefficiency in terms of kornai s soft budget constraints within organizations

a life cycle consumption model with liquidity constraints theory and empirical results a structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 u s families liquidity constrained families are estimated to constitute 19 4 percent of the population sampled a group that accounts for 16 7 percent of consumption in the population sampled in sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect copyright 1987 by the econometric society

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

fertility social mobility and long run inequality dynastic altruistic models with endogenous fertility have been shown to be unable to generate enough intergenerational persistence using a bewley model with endogenous fertility we show that it is possible to recover persistence key ingredients for our result include exponential child discounting discrete number of children diminishing costs of child rearing and an elasticity of intergenerational substitution larger than one our model provides a unified framework of analysis for long run inequality that incorporates fertility choices

capital accumulation and the characteristics of private intergenerational transfers many recent studies of the process of family accumulation in general and household response to social security in particular have revealed growing dissatisfaction with the life cycle theory of saving see for example barro 1978 kotlikoff 1979 darby 1979 kotlikoff and summers 1981 kurz 1981 blinder gordon and wise 1981 david and menchik 1982 leimer and lesnoy 1982 an alternative to the life cycle hypothesis is expressed by defining the preference of each family over its own consumption as well as the welfare of the generations that follow thus each family consists of an infinite chain of generations who have interdependent preferences and for this reason we shall call it the inter generational hypothesis it was recently used by barro 1974 1978 to attack the conclusions of the life cycle hypothesis our purpose in this paper is to start the long road of studying the structure of the private inter generational transfer system with the aim of providing additional tests of the two competing hypotheses

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

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

is everything neutral in his well known analysis of the national debt robert barro introduced the notion of a dynastic family this notion has since become a standard research tool particularly in the areas of public finance and macroeconomics in this paper we critique the assumptions on which the dynastic model is predicated and argue that this framework is not a suitable abstraction in contexts in which the objective is to analyze the effects of public policies we reach this conclusion by formally considering a world in which each generation consists of a large number of distinct individuals as opposed to one representative individual we point out that family linkages form complex networks in which each individual may belong to many dynastic groupings the resulting proliferation of linkages between families gives rise to a host of neutrality results including the irrelevance of all public redistributions distortionary taxes and prices since these results are not at all descriptive of the real world we conclude

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

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

wealth inequality and intergenerational links previous work has had difficulty generating household saving behaviour that makes the distribution of wealth much more concentrated than that of labour earnings and that makes the richest households hold onto large amounts of wealth even during very old age i construct a quantitative general equilibrium overlapping generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability i show that voluntary bequests can explain the emergence of large estates while accidental bequests alone cannot and that adding earnings persistence within families increases wealth concentration even more i also show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data

ricardian equivalence revisited deficits gifts and bequests barro 1974 shows that operative altruistic transfer motives are key for ricardian equivalence to hold this paper evaluates the importance of this mechanism quantitatively by studying deficit financed tax cut experiments i use a heterogeneous agents overlapping generations economy with endogenously operative transfer motives to capture the fact that empirically transfers occur in some but not in all families altruism is calibrated to match aggregate transfer statistics i find that the response of aggregate consumption to a tax cut is in the ballpark of a standard overlapping generations economy that is an economy without altruistic family links welfare implications of this economy however move closer to a dynastic economy

long run equilibria with borrowing constraints and altruism this paper adapts a nonstochastic overlapping generations model to include liquidity constraints and intergenerational altruism existing work indicates the importance of both but often considers them separately this paper studies their interactions first it shows that they tend to conflict the model only admits stationary equilibria with dynastic wealth accumulation but no binding liquidity constraints or wity binding constraints but no dynastic accumulation second it examines the latter type of equilibrium closely if liquidity constraints bind quantitative examples imply that consequent utility losses may be small and that economywide wealth accumulation tends to be unrealistically low

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

capital income taxation wealth distribution and borrowing constraints the theorem of zero taxation of capital income is reexamined and is shown to hinge critically on the assumptions of a long horizon and perfect markets for the inter temporal allocation of resources the theorem does not hold when borrowing constraints prevent individuals from insuring against idiosyncratic shocks and have a precautionary motive for savings structural assumptions are made such that with no taxation aggregate savings are socially excessive in the long run i e the rate of return is smaller than the discount rate sufficient conditions for a pareto efficient taxation or subsidization of capital in the long run depend on the correlation between individuals consumption and savings a subsidy may be efficient when individuals incomes follow a predictable pattern of life cycles with no negative bequest 2001 elsevier science b v all rights reserved

random earnings differences lifetime liquidity constraints and altruistic intergenerational transfers abstract this paper develops a model of private savings behavior in which households care about their descendants cannot have negative net worth and have lifetime earnings depending on random draws from an exogenous distribution of abilities the elements interact very lucky parents are likely to leave large estates constrained children are unusually likely to receive intergenerational transfers the paper proves the existence of a stationary cross sectional distribution of wealth endogenously determines where liquidity constraints will bind and shows that the long term interest rate must be such that ricardian neutrality fails its last section generates several illustrative numerical simulations

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

on the existence and uniqueness of stationary equilibrium in bewley economies with production abstract i prove existence of stationary recursive competitive equilibrium in bewley economies with production under specifications in which i the utility function is allowed to be unbounded and ii the underlying discrete idiosyncratic productivity process can take any form aside from mild restrictions some of the intermediate results provide theoretical basis for assumptions often made in the quantitative macroeconomics literature by providing an example i illustrate that the equilibrium is not necessarily unique even under typical specifications of the model and discuss the underlying reasons for multiplicity

business ties and proxy voting by mutual funds abstract the magnitude of mutual funds business ties with their portfolio firms is documented and is linked to funds proxy votes at specific firms and to overall voting practices aggregate votes at the fund family level indicate a positive relation between business ties and the propensity to vote with management votes at specific firms however reveal that funds are no more likely to vote with management of client firms than of non clients because the votes took place when funds knew their votes would be publicly scrutinized fund families with a larger client base may have adopted voting policies that led to less frequent opposition to management at all firms

government debt redistributive fiscal policies and the interaction between borrowing constraints and intergenerational altrusim abstract we show how borrowing constraints intergenerational altruism and their interaction shape the aggregate savings response to government debt and fiscal policies that redistribute resources between living generations we also characterize the conditions under which borrowing constraints bind and the altruistic transfer motive operates in terms of the strength of the altruism motive the shape of the lifetime productivity profile the willingness to substitute consumption intertemporally and other factors finally we characterize the dynamic response of aggregate savings to nonneutral government debt policies in economies with binding borrowing constraints

effects of inflation on wealth distribution do stock market participation fees and capital income taxation matter abstract the effects of a permanent change in inflation on the distribution of wealth are analyzed in a general equilibrium olg model that is calibrated with regard to the characteristics of the us economy poor agents accumulate savings predominantly in the form of money while rich agents participate in the stock market and accumulate equity higher inflation results in higher nominal interest rates and a higher real tax burden on interest income surprisingly an increase in inflation results in a lower stock market participation rate in addition savings decrease and the distribution of wealth becomes even more unequal

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

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

bargaining versus posted price selling abstract two popular selling methods bargaining and posted price selling are compared here in a dynamic model when bargaining costs no more than posted price selling we find that bargaining is always optimal when bargaining costs more however bargaining is still preferred if and only if the common cost for both selling methods is large enough we also find that an increase in the discount rate or the seller s bargaining power favors bargaining finally we find that if the distribution becomes more dispersed and the increase in a buyer s valuation is sufficiently large bargaining is more likely to be adopted

altruism incomplete markets and tax reform abstract we compute the welfare effects of different revenue neutral tax reforms that eliminate capital income taxation in two general equilibrium models calibrated to the u s economy in our dynastic model the reform with the largest welfare gain is the one that eliminates all income taxation and increases the consumption tax to 35 75 of the population alive at the time of the reform benefit from it individuals use intervivos transfers and bequests to redistribute the long run benefits in a pure life cycle economy that lacks this redistribution technology we find that the same reform would benefit only 9 of the population

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

modeling marital connections among family lines this paper examines the role of marital connections in models of intertemporal household behavior recent work by bernheim and bagwell implies that such connections might vastly expand the scope of neutrality results the present work studies several formulations including not only marriage but also descriptions of how people choose spouses purposeful choices lead to assortative mating all versions of the framework tend to lead away from cross sectional neutrality results the analysis suggests that one may be able to derive a solution for a parthenogenetic model and then interpret it as consistent with nash equilibrium behavior in a world with marriage

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

bequest motives a comparison of sweden and the united states this paper reviews four well known theoretical models of private bequest behavior notes their differing implications for public policy and discusses a way of empirically dis criminating among them then it implements the test with micro data from sweden lls and the u s psid the so called altruistic or dynastic model which among the four models has perhaps the most wide ranging implications for policy receives some support the sign pattern is as the model predicts while the magnitude is much smaller than the altruistic theory implies there is evidence of a potential complication due to a dependence of children s education on parents financial status in the case of the u s 2001 elsevier science b v all rights reserved

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