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The spenders-hoarders theory of capital accumulation, wealth distribution and fiscal policy

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  • PESTIEAU, Pierre

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • THIBAULT, Emmanuel

Abstract

This paper proposes a simple OLG model which is consistent with the essential facts about consumer behavior, capital accumulation and wealth distribution, and yields some new and surprising conclusions about fiscal policy. By considering a society in which individuals are distinguished according to two characteristics, altruism and wealth preference, we show that those who in the long run hold the bulk of private capital are not so much motivated by dynastic altruism as by preference for wealth. Two types of social segmentation can result with different wealth distribution. To a large extent our results seem to fit reality better than those obtained with standard optimal growth models in which dynastic altruism (or rate of impatience) is the only source of heterogeneity: overaccumulation can appear, public debt and unfunded pensions are not neutral, estate taxation can improve the welfare of the top wealthy.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007040.

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Date of creation: 01 Jun 2007
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Handle: RePEc:cor:louvco:2007040

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Related research

Keywords: altruism; preference for wealth; capital accumulation; wealth distribution; Ricardian equivalence;

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Cited by:
  1. Pierre Pestieau & Emmanuel Thibault, 2012. "Love thy children or money," Economic Theory, Springer, vol. 50(1), pages 31-57, May.

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