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Deviant Generations, Ricardian Equivalence, and Growth Cycles

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  • Barnett, Richard C.
  • Bhattacharya, Joydeep
  • Bunzel, Helle

Abstract

Two equilibrium possibilities are known to obtain in a standard overlapping-generations model with dynastic preferences: either the altruistic bequest motive is operative for every generation (in which case, Ricardian equivalence obtains) or it is not, for any generation. Dynamic equilibria, where the bequest motive is occasionally operative, cannot emerge. This paper studies bequest-giving behavior and out-of-steady-state bequest and growth dynamics in a Ak model with intra- and intergenerational consumption externalities. These externalities, by their very presence, do not destroy Ricardian equivalence. They may, however, give rise to deviant generations -- generations that do not leave a bequest having received an inheritance, and vice versa -- and that seals the fate for Ricardian equivalence. Consumption externalities may also generate interesting indeterminacies and endogenous growth cycles that did not exist otherwise.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12939.

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Date of creation: 18 May 2008
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Publication status: Forthcoming in Economic Theory
Handle: RePEc:isu:genres:12939

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: growth cycles; overlapping generations; Ricardian equivalence; bequests; bequest motive;

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  1. Jagadeesh Gokhale & Laurence J. Kotlikoff, 2000. "The baby boomers' mega-inheritance-myth or reality?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct 1.
  2. Andrew B. Abel, . "Operative Gift and Bequest Motives," Rodney L. White Center for Financial Research Working Papers 9-87, Wharton School Rodney L. White Center for Financial Research.
  3. De La Croix, D. & Michel, P., 1997. "Optimal Growth when Tastes are Inherited," ASSET - Instituto De Economia Publica 168, ASSET (Association of Southern European Economic Theorists).
  4. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2005. "Estate Taxes, Consumption Externalities, and Altruism," UFAE and IAE Working Papers 658.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  5. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521806428.
  6. Matsuyama, Kiminori, 1996. "Growing Through Cycles," Economics Series 40, Institute for Advanced Studies.
  7. Gregory S. Amacher & Erkki Koskela & Markku Ollikainen & M. Christine Conway, 2002. "Bequest Intentions of Forest Landowners: Theory and Empirical Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1103-1114.
  8. Michel, Philippe & Thibault, Emmanuel & Vidal, Jean-Pierre, 2006. "Intergenerational altruism and neoclassical growth models," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  9. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2007. "Minimum Consumption Requirements and Cycles in an Overlapping Generations Model of Money," Staff General Research Papers 12834, Iowa State University, Department of Economics.
  10. Emmanuel Thibault, 2000. "Existence of equilibrium in an OLG model with production and altruistic preferences," Economic Theory, Springer, vol. 15(3), pages 709-715.
  11. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
  12. Richard C. Barnett & Joydeep Bhattacharya & Helle Bunzel, 2007. "Resurrecting Equilibria Through Cycles," Economics Working Papers 2007-12, School of Economics and Management, University of Aarhus.
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