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A Strategic Altruism Model in Which Ricardian Equivalence Does Not Hold

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  • Kotlikoff, Laurence J
  • Razin, Assaf
  • Rosenthal, Robert W

Abstract

This article demonstrates that Ricardian equivalence does not necessarily hold in models with altruistic transfers once one takes into account the strategic behavior of recipients as well as donors. To influence the final allocation of consumption in altruistic settings, potential recipients can threaten to refuse transfers. The authors apply the extended Nash bargaining solution to the problem of an altruistic parent and a possible altruistic child. They show that when the government redistributes between the parent and child, it changes their endowments and the equilibrium threats and, thus, the final allocation of consumption. Copyright 1990 by Royal Economic Society.

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  • Kotlikoff, Laurence J & Razin, Assaf & Rosenthal, Robert W, 1990. "A Strategic Altruism Model in Which Ricardian Equivalence Does Not Hold," Economic Journal, Royal Economic Society, vol. 100(403), pages 1261-1268, December.
  • Handle: RePEc:ecj:econjl:v:100:y:1990:i:403:p:1261-68
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    1. Abel, Andrew B, 1987. "Operative Gift and Bequest Motives," American Economic Review, American Economic Association, vol. 77(5), pages 1037-1047, December.
    2. 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..
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    4. Kimball, Miles S., 1987. "Making sense of two-sided altruism," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 301-326, September.
    5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    6. Carmichael, Jeffrey, 1982. "On Barro's Theorem of Debt Neutrality: The Irrelevance of Net Wealth," American Economic Review, American Economic Association, vol. 72(1), pages 202-213, March.
    7. Drazen, Allan, 1978. "Government Debt, Human Capital, and Bequests in a Life-Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 505-516, June.
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    Cited by:

    1. Soares, Jorge, 2015. "Borrowing constraints, parental altruism and welfare," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 1-20.
    2. Salma Slimani, 2016. "Threshold Effects of Fiscal Policy on Economic Activity in Developing Countries," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(3), pages 20-37, March.
    3. Wolff, Francois-Charles & Laferrere, Anne, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 13, pages 889-969, Elsevier.
    4. Yang-Ming Chang, 2012. "Strategic transfers, redistributive fiscal policies, and family bonds: a micro-economic analysis," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(4), pages 1481-1502, October.
    5. Peter Prazmowski, 2014. "Ricardian equivalence and fiscal distortions in the Dominican Republic," Empirical Economics, Springer, vol. 46(1), pages 109-125, February.
    6. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-1166, December.
    7. Rebelein, Robert P, 1998. "Ricardian Equivalence Survives Strategic Behavior," Public Finance = Finances publiques, , vol. 53(2), pages 195-228.
    8. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-1198, December.
    9. Genicot, Garance, 2016. "Two-sided altruism and signaling," Economics Letters, Elsevier, vol. 145(C), pages 92-97.
    10. Julian Jamison, 2012. "Games with Synergistic Preferences," Games, MDPI, Open Access Journal, vol. 3(1), pages 1-15, March.
    11. Eunji Kim & Yoonhee Ha & Sangheon Kim, 2017. "Public Debt, Corruption and Sustainable Economic Growth," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-30, March.
    12. 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.
    13. Kotlikoff, Laurence J., 2002. "Generational policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 27, pages 1873-1932, Elsevier.
    14. Severinov, Sergei, 2006. "Bequests as signals: Implications for fiscal policy," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1995-2008, November.
    15. Dobrescu, Loretti I. & Kotlikoff, Laurence J. & Motta, Alberto, 2012. "Why aren't developed countries saving?," European Economic Review, Elsevier, vol. 56(6), pages 1261-1275.
    16. Salma Slimani, 2016. "Threshold Effects of Fiscal Policy on Economic Activity in Developing Countries," International Journal of Business and Social Research, LAR Center Press, vol. 6(3), pages 20-37, March.
    17. Zhang, Jie, 2006. "Second-best public debt with human capital externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 347-360, February.

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