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Deviant generations, Ricardian equivalence, and growth cycles

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  • Richard Barnett
  • Joydeep Bhattacharya
  • Helle Bunzel

Abstract

Two 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. Copyright Springer-Verlag 2013

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  • Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2013. "Deviant generations, Ricardian equivalence, and growth cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 367-396, January.
  • Handle: RePEc:spr:joecth:v:52:y:2013:i:1:p:367-396
    DOI: 10.1007/s00199-011-0645-3
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    More about this item

    Keywords

    Consumption externality; Bequests; Ricardian equivalence; Growth cycles; E13; E32;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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