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Intergenerational Risk Sharing

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  • Roger H. Gordon
  • Hal R. Varian

Abstract

In this paper, we argue that in designing government debt and tax-transfer policies, it is important to consider their implications for the allocation of risk between generations. There is no reason to presume that the market or the family can allocate risk efficiently to future generations, implying that stochastic government policies have the potential to create first-order welfare improvements. The model provides a non-Keynsian justification for debt-finance of wars and recessions, as well as an added rationale for Social Security type tax-transfer schemes which aid unlucky generations, e.g., the Depression generation,at the expense of luckier generations.

Suggested Citation

  • Roger H. Gordon & Hal R. Varian, 1985. "Intergenerational Risk Sharing," NBER Working Papers 1730, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1730 Note: PE
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    1. Buchanan, James M., 1976. "Taxation in fiscal exchange," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 17-29.
    2. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-715, September.
    3. Stanley Fischer, 1982. "Welfare Aspects of Government Issue of Indexed Bonds," NBER Working Papers 0874, National Bureau of Economic Research, Inc.
    4. Joseph E. Stiglitz, 1983. "On the Relevance or Irrelevance of Public Financial Policy," NBER Working Papers 1057, National Bureau of Economic Research, Inc.
    5. Duncan K. Foley & Martin F. Hellwig, 1975. "Asset Management with Trading Uncertainty," Review of Economic Studies, Oxford University Press, vol. 42(3), pages 327-346.
    6. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    7. Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 1-27.
    8. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
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