Abstract
Can dynamic inefficiency be remedied by intergenerational family transfers? The issue matters for the connection between fiscal policy and economic growth. Yet family transfers have mostly been narrowly cast as altruistic. I show that an alternative motive the demonstration effect, whereby parents transfer to mold preferences of children can generate vastly different results: family transfers are positive under dynamic inefficiency. These transfers are instrumental to depress capital accumulation so as to approach the Golden Rule capital stock. Intuitively, family transfers from youth to old age reduce capital accumulation. However, family transfers are nil under dynamic efficiency. Unlike public debt, both capital accumulation and welfare are not worsened.
Keywords
OLG model; Dynamic efficiency; Intergenerational family transfers;
JEL codes
- C62: Existence and Stability Conditions of Equilibrium
- D91: Intertemporal Household Choice • Life Cycle Models and Saving
- O41: One, Two, and Multisector Growth Models
Replaces
Emmanuel Thibault, “Demonstration Effect and Dynamic Efficiency”, TSE Working Paper, n. 16-616, January 2016.
Emmanuel Thibault, “Demonstration Effect and Dynamic Efficiency”, IDEI Working Paper, n. 858, January 2016.
Reference
Emmanuel Thibault, “Demonstration Effect and Dynamic Efficiency”, Economics Letters, Elsevier, vol. 147, October 2016, pp. 42–45.
See also
Published in
Economics Letters, Elsevier, vol. 147, October 2016, pp. 42–45