An Analysis of Fiscal Policy Under Operative and Inoperative Bequest Motives
This paper presents a general equilibrium model with logarithmic preferences and technology. If the non-negativity constraint on bequests is strictly binding, then the bequest motive is characterized as inoperative. After determining the conditions for operative and inoperative bequest motives, the paper examines the effect of pay-as-you-go social security on the stochastic evolution of the capital stock. If the non-negativity constraint on bequests is strictly binding, then an increase in social security reduces the unconditional long-run expected capital stock. If the social security taxes and benefits are large enough, then the non-negativity constraint ceases to bind, and further increases in social security have no effect. This paper extends previous analyses by examining bequest behavior outside of the steady state and by allowing a non-degenerate cross-sectional distribution in the holding of capital.
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- Feldstein, Martin, 1988.
"The Effects of Fiscal Policies when Incomes Are Uncertain: A Contradiction to Ricardian Equivalence,"
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- Andrew B. Abel, .
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Rodney L. White Center for Financial Research Working Papers
09-87, Wharton School Rodney L. White Center for Financial Research.
- Andrew B. Abel, . "Operative Gift and Bequest Motives," Rodney L. White Center for Financial Research Working Papers 9-87, Wharton School Rodney L. White Center for Financial Research.
- Andrew B. Abel, 1987. "Operative Gift and Bequest Motives," NBER Working Papers 2331, National Bureau of Economic Research, Inc.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986.
"Ricardian Consumers with Keynesian Propensities,"
American Economic Review,
American Economic Association, vol. 76(4), pages 676-91, September.
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