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The Transfer Paradox in a One-Sector Overlapping Generations Model

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  • Partha Sen
  • Emily T. Cremers

Abstract

This paper examines the effects of international income transfers on welfare and capital accumulation in a one-sector overlapping generations model. It is shown that a strong form of the transfer paradox-- in which the donor country experiences a welfare gain while the recipient country experiences a welfare loss—may occur both in and out of steady state. In addition, it is shown that a weak form of the transfer paradox—where either the donor or recipient (but not both) experience paradoxical welfare effects—may characterize all segments of the transition path not already characterized by the strong transfer paradox. The results are explained by the effects of transfers on world capital accumulation and the world interest rate, which imply secondary intertemporal welfare effects large enough to dominate the initial effects of the income transfer. [Working Paper No. 159]

Suggested Citation

  • Partha Sen & Emily T. Cremers, 2010. "The Transfer Paradox in a One-Sector Overlapping Generations Model," Working Papers id:2851, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2851
    Note: Institutional Papers
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    Cited by:

    1. Kojun Hamada & Mitsuyoshi Yanagihara, 2014. "Donor Altruism and the Transfer Paradox in an Overlapping Generations Model," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 905-922, November.
    2. Emily T. Cremers & Partha Sen, 2009. "Transfers, the terms of trade, and capital accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1599-1616, November.
    3. Hu, Weizhen, 2019. "Policy effects on transitional welfare in an overlapping generations model: A pay-as-you-go pension reconsidered," Economic Modelling, Elsevier, vol. 81(C), pages 40-48.
    4. Kojun Hamada & Tsuyoshi Shinozaki & Mitsuyoshi Yanagihara, 2017. "Aspirations and the transfer paradox in an overlapping generations model," Journal of Economics, Springer, vol. 122(3), pages 279-301, November.
    5. Kojun Hamada & Akihiko Kaneko & Mitsuyoshi Yanagihara, 2017. "The transfer paradox in a pay-as-you-go pension system," International Economics and Economic Policy, Springer, vol. 14(2), pages 221-238, April.
    6. Hamada, Kojun & Yanagihara, Mitsuyoshi, 2016. "Intergenerational altruism and the transfer paradox in an overlapping generations model," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 161-167.
    7. Jung Young-Cheol & Quyen Nguyen V., 2012. "The Global Transmission of Government Debt," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-24, July.
    8. Capello, Marcelo & Figueras, Alberto & Freille, Sebastian & Moncarz, Pedro, 2013. "The role of federal transfers in regional convergence in human development indicators in Argentina," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 27, pages 33-63.
    9. Emily T. Cremers, 2008. "Transfers, the Terms of Trade and Capital Accumulation," DEGIT Conference Papers c013_018, DEGIT, Dynamics, Economic Growth, and International Trade.
    10. Nagae, Akira & Katayama, Hajime & Takase, Koichi, 2022. "Donor aid allocation and accounting standards of recipients," Economic Modelling, Elsevier, vol. 106(C).

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    More about this item

    Keywords

    Transfer problem; transfer paradox; dynamics; one-sector overlapping generations model;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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