Intergenerational Altruism Research Articles

The two sides of public debt: Intergenerational altruism and burden shifting.

In controlled laboratory experiments with and without overlapping generations, we study the role of intergenerational altruism in public debt accumulation. Public debt is chosen by popular vote, pays for public goods, and is repaid with general taxes. We use an optimal control model to derive a theoretical benchmark. With a single generation, public debt is accumulated prudently. With multiple and over-lapping generations, the burden of debt and the risk of over-indebtedness are shifted to future generations. We find a weak but significant sign of intergenerational altruism, observing that the revealed debt preferences increase as the number of following generations decreases. However, we find considerably fewer intergenerational fairness concerns than one would expect on the basis of the behavioral and experimental literature. Instead, political debt cycles that vary with voters’ age emerge. Debt ceiling mechanisms fail to encourage intergenerational altruism and do not mitigate the problem of burden shifting.

The Impact of Mortality Salience on Intergenerational Altruism and the Perceived Importance of Sustainable Development Goals

The Sustainable Development Goals (SDGs), consisting of 17 specific goals such as ending poverty, reducing inequality, and combating climate change, were proposed by the UN member states in 2014 for the ongoing UN agenda until 2030. These goals articulate the growing need for the international community to build a sustainable future. To progress and build a truly sustainable future requires not only the immediate support of individuals for the current SDGs, but also their personal long-term commitment to the needs of future generations (i.e., intergenerational altruism). Reminders of death can influence attitudes, motivation, and behavior in various aspects of our lives. In the current research, we thus explored whether reminding individuals of their own death will influence their intergenerational altruism and perceived importance of the SDGs. Using a three-condition (mortality salience vs. dentist visit vs. neutral) randomized experiment, we found that mortality salience led participants to place a higher priority on the needs of future generations only when compared to the neutral condition. Further, we conducted a factor analysis that generated two SDGs factors (socially related SDGs and ecologically related SDGs). We found that mortality salience reduced participants’ perceived importance of the socially related SDGs when compared to both the dentist visit and the neutral conditions, and mortality salience decreased participants’ perceived importance of the ecologically related SDGs only when compared to the neutral condition.

Defence Commitment and Deterrence in the Theory of War*

The article shows that a defending army, particularly a small one, can fight hard when attacked by a predator. The result arises in the commitment equilibrium of a model with intergenerational altruism. By implication, the article offers a novel theory of deterrence and defence policy. It shows that in the absence of informational constraints, there is a unique army size that is sufficient for deterrence. Under informational restrictions, a pooling equilibrium may exist where a victim with strong intergenerational altruism overinvests in its army, while the victim with a more limited altruism free rides on the information gap of the predator and builds a smaller army. Conditions for the existence of a separating equilibrium are established in terms of the cost of war. It turns out that the optimal defence policy need not satisfy the deterrence requirement. The case of separating equilibrium helps to explain why wars exist in equilibrium.

Intergenerational Altruism and Transfers of Time and Money: A Life-Cycle Perspective

Parental investments in children can take one of three broad forms: (1) Time investments during child-hood and adolescence that aid child development, and in particular cognitive ability (2) Educational investments that improve school quality and hence educational outcomes (3) Cash investments in the form of inter-vivos transfers and bequests. We develop a dynastic model of household decision making with intergenerational altruism that nests a child production function, incorporates all three of these types of investments, and allows us to quantify their relative importance and estimate the strength of intergenerational altruism. Using British cohort data that follows individuals from birth to retirement, we fnd that around 40% of differences in average lifetime income by paternal education are explained by ability at age 7, around 40% by subsequent divergence in ability and different educational outcomes, and around 20% by inter-vivos transfers and bequests received so far.

Provision of a Public Good with Multiple Dynasties

Carbon emissions create externalities across countries and generations. These externalities depend on the degree of contemporaneous cooperation and intergenerational altruism. I study the relative importance of these features, in determining equilibrium climate policy, by imbedding an OLG framework with intergenerational altruism into a differential game among dynasties, each representing a coalition of nations. There is an isomorphism between pure and paternalistic altruism. I illustrate the multiplicity of equilibria using an analytic “linear in state” model. Equilibrium steady states are more sensitive to small changes in cooperation than altruism. Consideration of large changes in altruism and cooperation can reverse this ranking.

Worldviews and Intergenerational Altruism: A Comparison of Turkish People Living in Turkey and Germany

In this paper, we examine and compare the impact of cultural differences on intergenerational altruism in Turkish people living in Turkey and in Germany, using the anthropological concept of worldview. Data were gathered from four surveys: nationwide surveys in Turkey and Germany, an online survey of Turkish people living in Germany, and a survey conducted as an experiment in a mosque attended by Turkish people in Germany. We find striking differences in parenting attitudes between Turkish people living in Turkey and those who live in Germany. Turkish people living in Germany tend to resemble German people in their parenting attitudes. We also find that differences in confidence attached to worldview beliefs, differences in religiosity, and the subjective probabilities attached to worldview beliefs (such as “All humans evolved from another living organism”) between Turkish people living in Turkey and those in Germany have statistically significant explanatory power for these differences in parenting attitudes.

A Theory of Intergenerational Altruism

Modeling intergenerational altruism is crucial to evaluate the long-term consequences of current decisions, and requires a set of principles guiding such altruism. We axiomatically develop a theory of pure, direct altruism: Altruism is pure if it concerns the total utility (rather than the mere consumption utility) of future generations, and direct if it directly incorporates the utility of all future generations. Our axioms deliver a new class of altruistic, forward-looking preferences, whose weight put on the consumption of a future generation generally depends on the consumption of other generations. The only preferences lacking this dependence correspond to the quasi-hyperbolic discounting model, which our theory characterizes. Our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences.

Intergenerational altruism and house prices: Evidence from bequest tax reforms in Italy

The degree of intergenerational altruism is estimated in a benchmark Barro-type OLG framework with imperfect altruism, exploiting the exogenous variation generated by reforms of the tax treatment of bequests and inter vivos real estate donations enacted in Italy between 2000 and 2001. Using longitudinal information on the housing stock and house prices in 13 large Italian cities between 1993 and 2004, the structural parameter of interest is estimated via the effect of the reform on house prices. We estimate a degree of intergenerational altruism ranging between 0.2 and 0.3, a magnitude consistent with existing parameterizations for the US economy.

Destructive Intergenerational Altruism

Are the probable future negative effects of climate change an argument for decreasing the discount rate to promote the interests of future generations? The analysis of the present paper suggests that such stronger intergenerational altruism might undermine future well-being if not complemented by collective climate action. In the standard one-sector model of economic growth normatively attractive outcomes will be implemented if each generation has sufficient altruism for its descendants. This conclusion is radically changed in a two-sector model where one form of capital is more productive than the other but leads to negative atmospheric externalities. In fact, the model shows that, if each dynasty is trying to get ahead in a world threatened by climate change by increasing its intergenerational altruism, then long-term well-being will be seriously undermined.

Fiscal policy in debt constrained economies

We study optimal fiscal policy in a small open economy (SOE) with sovereign and private default risk and limited commitment to tax plans. The SOE's government uses linear taxation to fund exogenous expenditures and uses public debt to inter-temporally allocate tax distortions. We characterize a class of environments in which the tax on labor goes to zero in the long run, while the tax on capital income may be non-zero, reversing the standard prediction of the Ramsey tax literature. The zero labor tax is an optimal long run outcome if the economy is subject to sovereign debt constraints and the domestic households are impatient relative to the international interest rate. The front loading of tax distortions allows the economy to build a large (aggregate) debt position in the presence of limited commitment. We show that a similar result holds in a closed economy with imperfect inter-generational altruism, providing a link with the closed-economy literature that has explored disagreement between the government and its citizens regarding inter-temporal tradeoffs.

The more the merrier? Fertility and food insecurity among older Senegalese women

ABSTRACTThe number of children women have is a critical determinant of their future wellbeing. Often, adult children confer some protection against adverse conditions in their older ages. In many sub-Saharan African societies, it is expected that older women who typically have had many children, will benefit from their investment in children. Yet it is unclear if this is really the case. Using data from the 10 per cent micro-sample of the 2002 Senegalese Population and Housing Census, this study investigates the effect of the childbearing histories of older women (aged 60–85) on the likelihood that their households experienced food insecurity in the past year. Women who had had no children and those who had ever had two or more, were not significantly different from those who had had five or more – only those who had had one child were adversely affected. Based on principles of intergenerational altruism and moral obligation, I expected that food insecurity would decrease with increases in the number of surviving children. This pattern was generally found. However, among women in the bottom 40 per cent of the wealth distribution, the relationship was, at best, weak with respect to all of the fertility variables (children ever had, living, co-resident). The benefits of high fertility seem to accrue to relatively richer women – those in the top 60 per cent of the wealth distribution. Yet among these richer women, having fewer than three children and co-resident adult children were significant risk factors of food insecurity.

Intergenerational altruism and the transfer paradox in an overlapping generations model

Abstract This study investigates how intergenerational altruism affects the possibility of the transfer paradox occurring in a two-country, one-sector overlapping generations model. We derive the conditions under which the transfer paradox occurs in our model where a generation within each country has altruism toward the subsequent generation. Contrary to earlier results in the literature, we find that altruism does not enter the conditions under which the transfer paradox occurs in the steady state. Moreover, we show that although altruism affects the condition of the transfer paradox along the transition path, its effect on this condition vanishes as the economy converges to the steady state.

Intergenerational Altruism and House Prices: Evidence from Bequest Tax Reforms in Italy

We identify the degree of intergenerational altruism in an OLG framework a la Barro exploiting the quasi-experimental variation generated by reforms of bequest taxation (estate or inheritance tax, in the U.S.) and taxes on inter vivos real estate donations (gift tax, in the U.S.) that were enacted in Italy between 2000 and 2001. Employing a unique data set containing information on the housing stock and house prices in 13 large Italian cities between 1993 and 2004, we identify the structural parameter of interest via the effect of changes in the tax rate on house prices. We find that the intergenerational altruism parameter is about 20%. Given the possible anticipation of the reform this estimate should be interpreted as a lower bound.

Provision of a Public Good with Altruistic Overlapping Generations and Many Tribes

Intergenerational altruism and contemporaneous cooperation are both important to the provision of long-lived public goods. Equilibrium climate protection may depend more sensitively on either of these considerations, depending on the type of policy rule one examines. This conclusion is based on a model with  tribes, each with a sequence of overlapping generations. Tribal members discount their and their descendants’ utility at different rates. Agents in the resulting game are indexed by tribal affiliation and the time at which they act. The Markov Perfect equilibrium is found by solving a control problem with a constant discount rate and an endogenous annuity.

Growth vs. level effect of population change on economic development: An inspection into human-capital-related mechanisms

This paper studies the different mechanisms and the dynamics through which demography is channeled to the economy. We analyze the role of demographic changes in the economic development process by studying the transitional and the long-run impact of both the rate of population growth and the initial population size on the levels of per capita human capital and income. We do that in an enlarged Lucas–Uzawa model with intergenerational altruism. In contrast to the existing theoretical literature, the long-run level effects of demographic changes, i.e. their impact on the levels of the variables along the balanced growth path, are deeply characterized in addition to the more standard long-run growth effects. We prove that the level effect of the population rate of growth is non-negative (positive in the empirically most relevant case) for the average level of human capital, but a priori ambiguous for the level of per capita income due to the interaction of three transmission mechanisms of demographic shocks, a standard one (dilution) and two non-standard (altruism and human capital accumulation). Overall, the sign of the level effects of population growth depends on preference and technology parameters, but numerically we show that the joint negative effect of dilution and altruism is always stronger than the induced positive human capital effect. The growth effect of population growth depends basically on the attitude to intergenerational altruism and intertemporal substitution. Moreover, we also prove that the long-run level effects of population size on per capita human capital and income may be negative, nil, or positive, depending on the relationship between preferences and technology, while its growth effect is zero. Finally, we show that the model is able to replicate complicated time relationships between economic and demographic changes. In particular, it entails a negative effect of population growth on per capita income, which dominates in the initial periods, and a positive effect which restores a positive correlation between population growth and economic performance in the long term.

When Elders Rule: Is Gerontocracy Harmful for Growth?

We study the relationship between gerontocracy and aggregate economic perfomance in a simple model where growth is driven by human capital accumulation and productive government spending. We show that gerontocratic elites display the tendency to underinvest in public education and productive government services and thereby may be harmful growth. In absence of intergenerational altruism, the damage caused by gerontocracy is mainly due to the lack in long-term delayed-return investment originated by the shorter life horizon of the ruling class with respect to the rest of the population. An empirical analysis is carried out on a rich data set that al lows to test theoretical results across different countries and different sectors. The econometric results confirm our main hypotheses.

A constructive geometrical approach to the uniqueness of Markov stationary equilibrium in stochastic games of intergenerational altruism

We provide sufficient conditions for existence and uniqueness of a monotone, Lipschitz continuous Markov stationary Nash equilibrium (MSNE) and characterize its associated Stationary Markov equilibrium in a class of intergenerational paternalistic altruism models with stochastic production. Our methods are constructive, and emphasize both order-theoretic and geometrical properties of nonlinear fixed point operators, and relate our results to the construction of globally stable numerical schemes that construct approximate Markov equilibrium in our models. Our results provide a new catalog of tools for the rigorous analysis of MSNE on minimal state spaces for OLG economies with stochastic production and limited commitment.

Bequest taxes, donations, and house prices

This paper is an empirical investigation into the effect of bequest taxes (estate or inheritance tax, in the US) and inter vivos real estate donations taxes (gift tax, in the US) on (i) house prices, (ii) house donations, and (iii) market transactions. In a simple model with intergenerational altruism, a lower tax rate unambiguously increases (i) and has an ambiguous effect on (ii) and (iii). We test these predictions using an original and unique data set containing information on sales, donations and real estate prices in 13 large Italian cities between 1993 and 2004. This period spans a major reform that first decreased and then abolished the inter vivos real estate donations tax and bequest tax in Italy. We find that the reform is associated with cumulative real appreciation of about 5% between 2001 and 2004, an increase in donations, and a decrease in market transactions over the same period.

TOUGH LOVE AND INTERGENERATIONAL ALTRUISM*

This article develops and studies a tough love model of intergenerational altruism. We model tough love by modifying the Barro‐Becker standard altruism model in two ways. First, the child’s discount factor is endogenously determined, so lower childhood consumption leads to a higher discount factor later in life. Second, the parent evaluates the child’s lifetime utility with a constant high discount factor. Our model predicts that parental transfers will fall when the child’s discount factor falls. This is in contrast with the standard altruism model, which predicts that parental transfers are independent of exogenous changes in the child’s discount factor.

Social security reform with impure intergenerational altruism

This paper studies the long-run aggregate and welfare effects of eliminating Social Security in a quantitative dynamic general equilibrium life-cycle model where parents and their children are linked by voluntary and accidental bequests. Social Security in this model with impure altruism has a smaller effect on capital accumulation than in a pure life-cycle model, a bigger effect than in a model with two-sided altruism. The welfare gain of eliminating Social Security system under impure altruism is smaller than that in a pure life-cycle model, and bigger than that in a model with two-sided altruism.