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Fiscal policy with agents differing in altruism and ability

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  • MICHEL, Philippe
  • PESTIEAU, Pierre

Abstract

This Paper explores the effects of a menu of inter-generational fiscal policies (public debt financed by taxes, PAYG social security system and inheritance taxation) in an overlapping generations model with perfect altruism. It generalizes the model by Barro (1974) by introducing intra-generational heterogeneity. In other words, households differ in productivity and altruism. Within such a model wealth is entirely held in the steady-state by the families with the highest degree of altruism. Under plausible assumptions both public debt and social security are neutral à la Ricardo, while increasing inequality. Also, estate taxation can be Pareto worsening even though it fosters income equality.
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Suggested Citation

  • MICHEL, Philippe & PESTIEAU, Pierre, 2005. "Fiscal policy with agents differing in altruism and ability," LIDAM Reprints CORE 1825, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:1825
    Note: In : Economica, 72, 121-135, 2005
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    References listed on IDEAS

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    1. 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. Philippe Weil, 1987. "Love Thy Children," Post-Print hal-03393237, HAL.
    5. Smetters, Kent, 1999. "Ricardian equivalence: long-run Leviathan," Journal of Public Economics, Elsevier, vol. 73(3), pages 395-421, September.
    6. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 375-382.
    7. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
    8. Falk, Ita & Stark, Oded, 2001. "Dynasties and Destiny: On the Roles of Altruism and Impatience in the Evolution of Consumption and Bequests," Economica, London School of Economics and Political Science, vol. 68(272), pages 505-518, November.
    9. Philippe Michel & Pierre Pestieau, 1998. "Fiscal Policy in a Growth Model with Both Altruistic and Nonaltruistic Agents," Southern Economic Journal, John Wiley & Sons, vol. 64(3), pages 682-697, January.
    10. Nourry, Carine & Venditti, Alain, 2001. "Determinacy of Equilibrium in an Overlapping Generations Model with Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 230-255, January.
    11. Laitner, John, 2001. "Secular Changes in Wealth Inequality and Inheritance," Economic Journal, Royal Economic Society, vol. 111(474), pages 691-721, October.
    12. Joseph E. Stiglitz, 1978. "Notes on Estate Taxes, Redistribution, and the Concept of Balanced Growth Path Incidence," NBER Chapters, in: Research in Taxation, pages 137-150, National Bureau of Economic Research, Inc.
    13. Weil, Philippe, 1987. "Love thy children : Reflections on the Barro debt neutrality theorem," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 377-391, May.
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    Cited by:

    1. Borissov, Kirill & Kalk, Andrei, 2020. "Public debt, positional concerns, and wealth inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 96-111.
    2. Helmuth Cremer & Pierre Pestieau, 2011. "The Tax Treatment of Intergenerational Wealth Transfers ," CESifo Economic Studies, CESifo, vol. 57(2), pages 365-401, June.
    3. Helmuth Cremer & ) & Pierre Pestieau, 2003. "Wealth Transfer Taxation: A Survey," Public Economics 0311003, University Library of Munich, Germany.
    4. Emmanuel Thibault, 2017. "Is GDP a Relevant Social Welfare Indicator? A Savers—Spenders Theory Approach," The Japanese Economic Review, Springer, vol. 68(3), pages 333-351, September.
    5. Belan Pascal & Moussault Erwan, 2020. "Inheritance Taxation in a Model with Intergenerational Time Transfers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-19, January.
    6. Emin Gahramanov & Xueli Tang, 2013. "Should We Refinance Unfunded Social Security?," Economica, London School of Economics and Political Science, vol. 80(319), pages 532-565, July.
    7. Max Franks & Ottmar Edenhofer, 2020. "Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital," CESifo Working Paper Series 8093, CESifo.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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