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Deficits, Gifts, and Bequests

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  • Daniel Barczyk

    (McGill University)

Abstract

What is the response of aggregate consumption to a deficit-financed tax cut? It is well-known that intergenerational transfers are key to answer this question. I address this issue by studying a heterogeneous-agents overlapping-generations economy with imperfect altruism. The model generates richer and more realistic transfer behavior than a dynastic or an overlapping-generations economy. The model is calibrated to match aggregate data on inter-vivos transfers. I find that the response of aggregate consumption to a deficit-financed tax cut is quantitatively more similar to the overlapping-generations economy's welfare implications, however, tend to be closer to the dynastic economy's.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 25.

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Date of creation: 2013
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Handle: RePEc:red:sed013:25

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References

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  1. Jonathan Heathcote, 2005. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 161-188.
  2. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  3. Andrew B. Abel, 1988. "Operative Gift and Bequest Motives," NBER Working Papers 2331, National Bureau of Economic Research, Inc.
  4. William G. Gale & John Karl Scholz, 1991. "Intergenerational Transfers and the Accumulation of Wealth," UCLA Economics Working Papers 624, UCLA Department of Economics.
  5. Daniel Barczyk & Matthias Kredler, 2013. "Online Appendix to "A Dynamic Model of Altruistically-Motivated Transfers"," Technical Appendices 12-193, Review of Economic Dynamics.
  6. Laitner, John, 1992. "Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers," Journal of Economic Theory, Elsevier, vol. 58(2), pages 135-170, December.
  7. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2004. "Elimination of Social Security in a Dynastic Framework," Macroeconomics 0402008, EconWPA.
  8. Matthias Kredler & Daniel Barczyk, 2009. "A Dynamic Model of Altruistically-Motivated Transfers," 2009 Meeting Papers 573, Society for Economic Dynamics.
  9. Laitner, John, 1988. "Bequests, Gifts, and Social Security," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 275-99, April.
  10. Cox, Donald, 1990. "Intergenerational Transfers and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 187-217, February.
  11. repec:fth:stanho:e-88-35 is not listed on IDEAS
  12. Abel, Andrew B & Bernheim, B Douglas, 1991. "Fiscal Policy with Impure Intergenerational Altruism," Econometrica, Econometric Society, vol. 59(6), pages 1687-1711, November.
  13. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  14. David Altig & Steve J. Davis, 1991. "The Timing of Intergenerational Transfers, Tax Policy, and Aggregate Savings," NBER Working Papers 3753, National Bureau of Economic Research, Inc.
  15. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  16. Shinichi Nishiyama, 2002. "Bequests, Inter Vivos Transfers, and Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 892-931, October.
  17. Cox, Donald & Jappelli, Tullio, 1990. "Credit Rationing and Private Transfers: Evidence from Survey Data," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 445-54, August.
  18. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
  19. Altig, David & Davis, Steven J., 1993. "Borrowing constraints and two-sided altruism with an application to social security," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 467-494, May.
  20. Lindbeck, Assar & Weibull, Jorgen W, 1988. "Altruism and Time Consistency: The Economics of Fait Accompli," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1165-82, December.
  21. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1989. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," NBER Working Papers 3046, National Bureau of Economic Research, Inc.
  22. McGarry, Kathleen, 1999. "Inter vivos transfers and intended bequests," Journal of Public Economics, Elsevier, vol. 73(3), pages 321-351, September.
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Cited by:
  1. G. Bellettini & F. Taddei & G. Zanella, 2014. "Intergenerational altruism and house prices: evidence from bequest tax reforms in Italy," Working Papers wp947, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Matthias Kredler & Daniel Barczyk, 2009. "A Dynamic Model of Altruistically-Motivated Transfers," 2009 Meeting Papers 573, Society for Economic Dynamics.
  3. Daniel Barczyk & Matthias Kredler, 2013. "Online Appendix to "A Dynamic Model of Altruistically-Motivated Transfers"," Technical Appendices 12-193, Review of Economic Dynamics.

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