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Deviant Generations, Ricardian Equivalence, and Growth Cycles

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

Abstract

TTwo 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 inter-generational 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: 01 Jan 2013
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Publication status: Published in Economic Theory, January 2013, vol. 52 no. 1, pp. 367-396
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: bequests; Ricardian equivalence; growth cycles; Consumption externality;

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Cited by:
  1. Rangan Gupta & Lardo Stander, 2014. "Endogenous Fluctuations in an Endogenous Growth Model with Inflation Targeting," Working Papers 201432, University of Pretoria, Department of Economics.

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