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An Analysis of Fiscal Policy Under Operative and Inoperative Bequest Motives

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  • Andrew B. Abel

Abstract

This paper presents a general equilibrium model with logarithmic preferences and technology. If the non-negativity constraint on bequests is strictly binding, then the bequest motive is characterized as inoperative. After determining the conditions for operative and inoperative bequest motives, the paper examines the effect of pay- as- you-go social security on the stochastic evolution of the capital stock. If the non-negativity constraint on bequests is strictly binding, then an increase in social security reduces the unconditional long- run expected capital stock. If the social security taxes and benefits are large enough, then the non-negativity constraint ceases to bind, and further increases in social security have no effect. This paper extends previous analyses by examining bequest behavior outside of the steady state and by allowing a non-degenerate cross-sectional distribution in the holding of capital.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2298.

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Date of creation: Jun 1987
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Publication status: published as Abel, Andrew B. "Operative Gift And Bequest Motives," American Economic Review, 1987, v77(5), 1037-1047.
Handle: RePEc:nbr:nberwo:2298

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  1. Andrew B. Abel, . "Operative Gift and Bequest Motives," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 09-87, Wharton School Rodney L. White Center for Financial Research.
  2. Martin Feldstein, 1986. "The Effects of Fiscal Policies When Incomes are Uncertain: A Contradiction to Ricardian Equivalence," NBER Working Papers 2062, National Bureau of Economic Research, Inc.
  3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  4. Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986. "Ricardian Consumers with Keynesian Propensities," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 676-91, September.
  5. Drazen, Allan, 1978. "Government Debt, Human Capital, and Bequests in a Life-Cycle Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(3), pages 505-16, June.
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Cited by:
  1. Marc Nerlove & Assaf Razin & Efraim Sadka, 1988. "A Bequest-Constrained Economy: Welfare Analysis," NBER Working Papers 2779, National Bureau of Economic Research, Inc.

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