IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Intergenerational Strategic Behavior and Crowding Out in a General Equilibrium Model

The return of large government budget deficits should encourage us to resume analysis of their effects. Two topics deserving further attention are the importance of correctly modeling the form of intergenerational relationships and clarification of the extent to which deficits crowd out private investment. This paper presents an overlapping generations model in which children seek to manipulate the size of the end-of-life bequest they receive from the parent – similar to the manipulation observed in the Samaritan’s dilemma. I first use numerical simulations to show this intergenerational strategic behavior does not negate the debt neutrality assertions of Ricardian equivalence. Then, by introducing capital gains and inheritance taxes, I show the crowding out effect of government debt is notably smaller in models with strategic behavior; manipulation by children increases the importance of bequests, which forces parents to save (and bequeath) a larger portion of a debt-financed tax cut. In spite of the neutrality of debt under lump sum taxes, including intergenerational strategic behavior can significantly influence the outcome of government tax policies. Given the restrictive nature of the conditions required for Ricardian equivalence to hold, it may be more useful to measure how near to or far from Ricardian equivalence a particular policy or economy comes rather than simply determining whether or not it holds in that environment.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://irving.vassar.edu/VCEWP/VCEWP74.pdf
Download Restriction: no

Paper provided by Vassar College Department of Economics in its series Vassar College Department of Economics Working Paper Series with number 74.

as
in new window

Length:
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:vas:papers:74
Contact details of provider: Postal: Maildrop 708, 124 Raymond Avenue, Poughkeepsie NY 12604-0708
Phone: (914)437-7395
Fax: (914)437-7576
Web page: http://irving.vassar.edu/VCEWP/VCEWP.htm

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Helmuth Cremer & Pierre Pestieau, 2003. "Wealth Transfer Taxation: A Survey," CESifo Working Paper Series 1061, CESifo Group Munich.
  2. Lambrecht, S., 1999. "Altruistic Bequests and Non-Negative Savings," G.R.E.Q.A.M. 99a06, Universite Aix-Marseille III.
  3. Raymond G. Batina, 1999. "A Differential Incidence Analysis of a Tax Reform From an Income Tax to a Consumption Tax in the Presence of Bequests," Public Finance Review, , vol. 27(3), pages 353-370, May.
  4. Gale, William G. & Slemrod, Joel, 2000. "Life and Death Questions About the Estate and Gift Tax," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 889-912, December.
  5. Laitner, John & Juster, F Thomas, 1996. "New Evidence on Altruism: A Study of TIAA-CREF Retirees," American Economic Review, American Economic Association, vol. 86(4), pages 893-908, September.
  6. Smetters, Kent, 1999. "Ricardian equivalence: long-run Leviathan," Journal of Public Economics, Elsevier, vol. 73(3), pages 395-421, September.
  7. Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January.
  8. Caballe, J., 1991. "Endogeneous Growth, Human Capital and Bequests in a Life-Cycle Model," UFAE and IAE Working Papers 158.91, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  9. B. Douglas Bernheim, 1992. "How Strong are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities," NBER Working Papers 2942, National Bureau of Economic Research, Inc.
  10. Robert J. Barro, 1988. "The Ricardian Approach to Budget Deficits," NBER Working Papers 2685, National Bureau of Economic Research, Inc.
  11. Shinichi Nishiyama, 2002. "Bequests, Inter Vivos Transfers, and Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 892-931, October.
  12. Stephen A. O'Connell & Stephen P. Zeldes, 1993. "Dynamic Efficiency in the Gifts Economy," NBER Working Papers 4318, National Bureau of Economic Research, Inc.
  13. Rebelein, Robert P, 1998. "Ricardian Equivalence Survives Strategic Behavior," Public Finance = Finances publiques, , vol. 53(2), pages 195-228.
  14. Neil Bruce & Michael Waldman, 1986. "The Rotten-Kid Theorem Meets the Samaritan's Dilemma," UCLA Economics Working Papers 402, UCLA Department of Economics.
  15. Joel Slemrod & Wojciech Kopczuk, 2000. "The Impact of the Estate Tax on the Wealth Accumulation and Avoidance Behavior of Donors," NBER Working Papers 7960, National Bureau of Economic Research, Inc.
  16. Modigliani, Franco, 1988. "The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 15-40, Spring.
  17. B. Douglas Bernheim & Kyle Bagwell, 1989. "Is Everything Neutral?," NBER Working Papers 2086, National Bureau of Economic Research, Inc.
  18. Kuehlwein, Michael, 1993. "Life-Cycle and Altruistic Theories of Saving with Lifetime Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 38-47, February.
  19. Shleifer, Andrei & Summers, Lawrence H. & Bernheim, B. Douglas, 1986. "The Strategic Bequest Motive," Scholarly Articles 3721794, Harvard University Department of Economics.
  20. Batina, Raymond G., 1987. "The consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions," Journal of Public Economics, Elsevier, vol. 34(3), pages 329-354, December.
  21. Laitner, John, 1993. "Long-run equilibria with borrowing constraints and altruism," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 65-96.
  22. Cremer, Helmuth & Pestieau, Pierre, 1993. "Education for Attention: A Nash Bargaining Solution to the Bequest-as-Exchange Model," Public Finance = Finances publiques, , vol. 48(Supplemen), pages 85-97.
  23. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  24. Kydland, Finn E. & Prescott, Edward C., 1988. "The workweek of capital and its cyclical implications," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 343-360.
  25. Alan J. Auerbach & Laurence J. Kotlikoff & Robert P. Hagemann & Giuseppe Nicoletti, 1989. "The Economic Dynamics of an Ageing Population: The Case of Four OECD Countries," OECD Economics Department Working Papers 62, OECD Publishing.
  26. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  27. Altig, David & Davis, Steve J., 1989. "Government debt, redistributive fiscal policies, and the interaction between borrowing constraints and intergenerational altrusim," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 3-29, July.
  28. Louis Kaplow, 2000. "A Framework for Assessing Estate and Gift Taxation," NBER Working Papers 7775, National Bureau of Economic Research, Inc.
  29. Kathleen McGarry & Robert F. Schoeni, 1994. "Transfer Behavior: Measurement and the Redistribution of Resources within the Family," NBER Working Papers 4607, National Bureau of Economic Research, Inc.
  30. Alan J. Auerbach & Laurence J. Kotlikoff & Robert Hagemann & Giuseppe Nicoletti, 1989. "The Dynamics of an Aging Population: The Case of Four OECD Countries," NBER Working Papers 2797, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:vas:papers:74. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sean Flynn)

The email address of this maintainer does not seem to be valid anymore. Please ask Sean Flynn to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.