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Transfers

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  • Xavier Sala-i-Martin

Abstract

In this paper I develop a positive theory of intergenerational transfers. I argue that transfers are a means to induce retirement. that is, to buy the elderly out of the labor force. The reason why societies choose to do such a thing is that aggregate output is higher if the elderly do not work. I model this idea through positive externalities in the average stock of human capital: because skills depreciate with age. one implication of these externalities is that the elderly have a negative effect on the productivity of the young. When the difference between the skill level of the young and that of the old is large enough, aggregate output in an economy where the elderly do not work is higher. Retirement in this case will be a good thing; pensions are just the means by which such retirement is induced. Unlike other theories of transfers. the theory in this paper is consistent with a number of regularities: transfers appear to be a luxury good that societies buy only after they reach a certain level of development and income: transfers are the only component of public spending that appear to be positively correlated with growth in a cross-section of countries; and transfers are linked to retirement and to the employment history of the worker. One key prediction of the model is that if the dependency ratio keeps rising, then the social security system will collapse, and that this will be the optimal thing to happen. Finally, a strict interpretation of the model would suggest that transfers to poor people, minimum wage laws. minimum working-age requirements and other types of public welfare serve the same purpose as old age social security; they keep workers possessing low human capital out of the labor force.

Suggested Citation

  • Xavier Sala-i-Martin, 1992. "Transfers," NBER Working Papers 4186, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4186
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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..
    2. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
    3. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    4. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    5. Casey B. Mulligan & Xavier Sala-i-Martin, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 739-773.
    6. Eric J. Bartelsman & Ricardo J. Caballero & Richard K. Lyons, 1991. "Short and Long Run Externalities," NBER Working Papers 3810, National Bureau of Economic Research, Inc.
    7. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    8. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    9. Laurence J. Kotlikoff & David A. Wise, 1987. "The Incentive Effects of Private Pension Plans," NBER Chapters,in: Issues in Pension Economics, pages 283-340 National Bureau of Economic Research, Inc.
    10. Buiter, Willem H. & Kletzer, Kenneth, 1991. "Persistent Differences in National Productivity Growth Rates with a Common Technology and Free Capital Mobility," CEPR Discussion Papers 542, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Fabrizio Carmignani, 2001. "Theory and Evidence on the Political Economy of Growth," Working Papers 33, University of Milano-Bicocca, Department of Economics, revised Jan 2001.
    2. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    3. Bénabou, Roland, 1996. "Unequal Societies," CEPR Discussion Papers 1419, C.E.P.R. Discussion Papers.
    4. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    5. F. Calidoni, 2005. "The effects of public transfers on productivity," Economics Department Working Papers 2005-EP01, Department of Economics, Parma University (Italy).
    6. Fidrmuc, Jan, 1999. "Stochastic Shocks and Incentives for (Dis)Integration," CEPR Discussion Papers 2104, C.E.P.R. Discussion Papers.

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