We develop the implications of borrowing constraints and two-sided altruism in an overlapping generations framework with agents who live three periods. Our analysis identifies six equilibrium patterns of intertemporal and intergenerational linkages in the no-loan economy, one of which corresponds to the traditional lifecycle model, and one of which corresponds to Barro's dynastic model. Novel linkage patterns involve parent-to-child transfers early in the life cycle, child-to-parent gifts late in the life cycle, or both. Capital accumulation behavior and the consequences of fiscal policy interventions depend, often critically, on which linkage patterns prevails. We show how unfunded social security interventions can significantly depress aggregate capital accumulation, even when every generation is linked to its successor generation by altruistic transfers. We also derive a non-Ricardian neutrality result for gift-motive economies that holds whether or not borrowing constraints bind and whether or not parent and child are connected by an operative altruism motive at all points in the life cycle.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
3913.
Length: Date of creation: Nov 1991 Date of revision: Publication status: published as Journal of Economic Dynamics and Control, 17 (1993), pp. 467-494 Handle: RePEc:nbr:nberwo:3913
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Bernheim, B Douglas & Bagwell, Kyle, 1988.
"Is Everything Neutral?,"
Journal of Political Economy,
University of Chicago Press, vol. 96(2), pages 308-38, April.
[Downloadable!] (restricted)
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B. Douglas Bernheim & Kyle Bagwell, 1989.
"Is Everything Neutral?,"
NBER Working Papers
2086, National Bureau of Economic Research, Inc.
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