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Fiscal Policy with Agents Differing in Altruism and in Ability

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  • Michel, Philippe
  • Pestieau, Pierre

Abstract

This Paper explores the effects of a menu of inter-generational fiscal policies (public debt financed by taxes, PAYG social security system and inheritance taxation) in an overlapping generations model with perfect altruism. It generalizes the model by Barro (1974) by introducing intra-generational heterogeneity. In other words, households differ in productivity and altruism. Within such a model wealth is entirely held in the steady-state by the families with the highest degree of altruism. Under plausible assumptions both public debt and social security are neutral à la Ricardo, while increasing inequality. Also, estate taxation can be Pareto worsening even though it fosters income equality.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4254.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4254

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Keywords: Altruism; D64; estate tax; public debt; social security;

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References

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  1. Falk, Ita & Stark, Oded, 2001. "Dynasties and Destiny: On the Roles of Altruism and Impatience in the Evolution of Consumption and Bequests," Economica, London School of Economics and Political Science, vol. 68(272), pages 505-18, November.
  2. Weil, Philippe, 1987. "Love thy children : Reflections on the Barro debt neutrality theorem," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 377-391, May.
  3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  4. Nourry, Carine & Venditti, Alain, 2001. "Determinacy of Equilibrium in an Overlapping Generations Model with Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 230-255, January.
  5. MICHEL, Philippe & PESTIEAU , Pierre, 1994. "Fiscal Policy in a Growth Model with Both Altruistic and Non Altruistic Agents," CORE Discussion Papers 1994049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Smetters, Kent, 1999. "Ricardian equivalence: long-run Leviathan," Journal of Public Economics, Elsevier, vol. 73(3), pages 395-421, September.
  7. John Laitner, 2001. "Secular Changes in Wealth Inequality and Inheritance," Working Papers wp020, University of Michigan, Michigan Retirement Research Center.
  8. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  9. Joseph E. Stiglitz, 1978. "Notes on Estate Taxes, Redistribution, and the Concept of Balanced Growth Path Incidence," NBER Chapters, in: Research in Taxation, pages 137-150 National Bureau of Economic Research, Inc.
  10. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
  11. Becker, Robert A, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 375-82, September.
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Cited by:
  1. Helmuth Cremer & Pierre Pestieau, 2003. "Wealth transfer taxation: a survey," DELTA Working Papers 2003-20, DELTA (Ecole normale supérieure).

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