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Fiscal Policy With Impure Intergenerational Altruism

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  • Andrew B. Abel
  • B. Douglas Bernheim

Abstract

Recent work demonstrates that dynastic assumptions guarantee the irrelevance of all redistributional polices, distortionary taxes, and prices--the neutrality of fiscal policy (Ricardian equivalence) is only the "tip of the iceberg." In this paper, we investigate the possibility of reinstating approximate Ricardian equivalence. by introducing a small amount of friction in intergenerational links. If Ricardian equivalence depends upon significantly shorter chains of links than do these stronger neutrality results, then friction my dissipate the effects that generate strong neutrality, without significantly affecting the Ricardian result. Although this intuition turns out to be essentially correct, we show that models with small amounts of friction have other untenable implications. We conclude that the theoretical case for Ricardian equivalence remains tenuous.

Suggested Citation

  • Andrew B. Abel & B. Douglas Bernheim, 1988. "Fiscal Policy With Impure Intergenerational Altruism," NBER Working Papers 2613, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2613
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    1. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
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    Cited by:

    1. Richard B. Howarth, 1996. "Climate Change And Overlapping Generations," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 100-111, October.
    2. B. Douglas Bernheim & Sergei Severinov, 2003. "Bequests as Signals: An Explanation for the Equal Division Puzzle," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 733-764, August.
    3. Preston J. Miller & William Roberds, 1992. "How little we know about deficit policy effects," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
    4. Philippe Méral, 1998. "Future generations and economic activities: The case of the social discount rate," Forum for Social Economics, Springer;The Association for Social Economics, vol. 27(2), pages 1-14, March.
    5. Smetters, Kent, 1999. "Ricardian equivalence: long-run Leviathan," Journal of Public Economics, Elsevier, vol. 73(3), pages 395-421, September.
    6. Uhlig, Harald & Yanagawa, Noriyuki, 1996. "Increasing the capital income tax may lead to faster growth," European Economic Review, Elsevier, vol. 40(8), pages 1521-1540, November.
    7. B. Douglas Bernheim, 1987. "Intergenerational Altruism and Social Welfare: A Critique of the Dynastic Model," NBER Working Papers 2288, National Bureau of Economic Research, Inc.
    8. Dutta, Jayasri & Michel, Philippe, 1998. "The Distribution of Wealth with Imperfect Altruism," Journal of Economic Theory, Elsevier, vol. 82(2), pages 379-404, October.
    9. Richard Cornes & Jun-ichi Itaya & Aiko Tanaka, 2012. "Private provision of public goods between families," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(4), pages 1451-1480, October.
    10. Ley, Eduardo, 1997. "Optimal provision of public goods with altruistic individuals," Economics Letters, Elsevier, vol. 54(1), pages 23-27, January.
    11. Piketty, Thomas, 2000. "Theories of persistent inequality and intergenerational mobility," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 8, pages 429-476 Elsevier.
    12. Jorge E. Araña & Carmelo J. León, 2002. "Willingness to pay for health risk reduction in the context of altruism," Health Economics, John Wiley & Sons, Ltd., vol. 11(7), pages 623-635.
    13. Richard N. Vaughan, "undated". "Intergenerational Altruism, Ricardian Equivalence and the Relevance of Distributional Policy," ELSE working papers 052, ESRC Centre on Economics Learning and Social Evolution.
    14. Sáez-Martí, María & Weibull, Jörgen W., 2002. "Discounting and Future Selves," Working Paper Series 575, Research Institute of Industrial Economics.
    15. Severinov, Sergei, 2006. "Bequests as signals: Implications for fiscal policy," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1995-2008, November.
    16. Richard Howarth & Richard Norgaard, 1993. "Intergenerational transfers and the social discount rate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 3(4), pages 337-358, August.
    17. Barczyk, Daniel, 2016. "Ricardian equivalence revisited: Deficits, gifts and bequests," Journal of Economic Dynamics and Control, Elsevier, vol. 63(C), pages 1-24.
    18. Preston J. Miller & William Roberds, 1989. "How little we know about budget policy effects," FRB Atlanta Working Paper 89-4, Federal Reserve Bank of Atlanta.

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