Intergenerational Altruism Research Articles

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 depend 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.

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 n 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.

Tough Love, Intergenerational Altruism, and Worldviews

This paper discusses the tough love model of intergenerational altruism we developed and some of on-going empirical research on tough love behavior in survey data collected in Japan and United States. The tough love model modifies the Barro-Becker standard altruism model in two ways. First, the child’s discount factor is endogenously determined, so that low consumption at young age leads to a higher discount factor later in her life. Second, the parent evaluates the child’s lifetime utility with a constant high discount factor. The tough love model predicts that transfers from the parent will fall when the child’s discount factor falls. This is in contrast with the predictions of the standard altruism model that transfers from parents are independent of exogenous changes in the child’s discount factor. In the empirical work, the hypothesis that parents’ tough love behavior is affected by their worldviews is investigated.

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 and implied invariant distribution 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, hence can be used to build globally stable asymptotically uniformly consistent numerical schemes for approximate solutions via Picard iterations on approximate versions of our operators. Our results provide hence a new catalog of tools for rigorous analysis of Markov stationary equilibrium on minimal state spaces for overlapping generations with stochastic production, without commitment.

Sustainable Development and Intergenerational Equity: Issues Relevant to India and Globally

As outlined, recurring concerns have surfaced since the 1700s that economic growth may prove to be unsustainable. These concerns have been expressed again and have intensified in recent decades but their foundation differs from that of Malthus. The rapid economic growth of China and India have added to these worries. Recent discussions by economists of the desirability of achieving sustainable economic development have mainly focused on measures to attain intergenerational equity in resource use and the dominant view is that each succeeding generation should be at least as well-off as its predecessor. While this is said to be an implication of Rawls’ principle of justice, this dominant rule does not fully reflect Rawls’ principle and it also can violate the Paretian improvement criterion. However, the full application of Rawls’ principle leads to questionable results. For example, it assumes a greater degree of risk-aversion than seems likely in practice and it ignores the importance of intergenerational altruism, for example, the sacrifices that parents willingly make for their children. Rawls’ principle also displays cosmological bias which results in it being at odds with the teachings of Hinduism and Buddhism. The mainstream stance on sustainable economic development does not appose economic growth. However, another neo-Malthusian point of view, expressed for example by Daly and Georgescu-Roegen, does. It is opposed to an increase in levels of global material production, that is, increased throughput of natural resources for economic production. These views are given some attention. Even if there is agreement about what constitutes a desirable path for economic development, uncertainty limits the scope for identifying measures that will achieve it. That raises the question of how far into the future should existing generations attempt to sustain economic development. This is discussed. In conclusion, it is pointed out that the nature of market systems and international relations make it very difficult to implement policies that can significantly reduce global economic growth and foster sustainable economic development. These problems are global problems and no country, India and China included, can afford to ignore them.

Real Estate Prices and the Importance of Bequest Taxation

Taxation of bequests and donations is an important determinant of real estate prices. We show that, ceteris paribus, a decrease in taxes on inter vivos donations and bequests brings about an increase in real estate prices. We provide a general equilibrium rationalization in the context of OLG economies featuring intergenerational altruism. This has relevant policy implications. We test the predictions of our theory employing a unique policy shock: the abolition of bequest and donation taxation that took place in Italy in 2001. Considering this policy shift provides the first evidence that a drastic reduction in bequest and donation taxation significantly increased real estate prices. Our estimates suggest that the 2001 abolition of taxation on bequests and donations alone led to an appreciation of residential real estate in excess of 10%.

OPTIMAL DISCOUNTING IN CONTROL PROBLEMS THAT SPAN MULTIPLE GENERATIONS

. The principal contribution of this paper is the linking together of separate control problems across multiple generations using the bequest motive, intergenerational altruism, rational expectations, and solution boundary conditions. We demonstrate that discounting at the market rate of interest is an endogenous characteristic of a general equilibrium, optimal control problem that spans multiple generations. Within the confines of our model, we prove that it is optimal to discount at the market rate of interest the social benefits to distant generations from immediate clean up at toxic waste sites if the current generation that bears the cleanup cost is perfectly altruistic towards future generations. Also, we show that this result holds for alternative assumptions regarding pure time preference. Moreover, the result holds regardless of whether selfish interim generations attempt to undo the provisions made for distant generations. In our distortion-free deterministic model, the evidence for intergenerational discounting at the market rate of interest is compelling.

Dynamic efficiency and intergenerational altruism

Can dynamic inefficiency that may occur in societies populated by non-altruistic agents be removed by introducing intergenerational altruism? Although the answer seems to be negative, this paper shows, by means of a simple example, that the presence of an arbitrarily low proportion of altruists can be sufficient to prevent a society from reaching a non-Pareto optimal equilibrium. Intergenerational transfers from the old to the young can therefore provide an alternative—to public debt, fiat money or money bubbles which transfer goods from the young to the old—solution to the dynamic efficiency problem.

Economic growth and endogenous intergenerational altruism

The recent literature on the endogenous formation of preferences has emphasized that while some preferences are more conducive to growth than others, economic growth also contributes to the formation of particular tastes [Becker, Gary S. (1996): Accounting for Tastes, Cambridge, Ma.: Harvard University Press]. In this paper, we construct a neoclassical growth model where intergenerational altruism can be endogenously reinforced and entails costly sacrifices on the part of parents to acquire such trait. While the incentives to acquire altruistic traits depend on the economic conditions, in turn altruism determines the level of intergenerational bequests and ultimately the pace of capital accumulation and economic growth. It is shown that intergenerational transfers are driven by a natural degree of altruism at earlier stages of economic growth. Once individuals have satisfied their own physiological constraint in the course of economic development, they devote resources to shaping their altruistic preferences, increasing their social degree of altruism above its natural level. This in turn increases the share of intergenerational transfers and speeds up economic growth.

La mise en place d'un fonds de réserve des retraites améliore-t-elle le bien être ?

Nous analysons les effets de la mise en place d’un fonds de réserve pour les retraites par répartition avant que ne survienne un vieillissement consistant en un allongement de la durée de vie. Nous nous plaçons soit en économie ouverte avec parfaite mobilité du capital, soit en économie fermée avec capital, salaire et taux d’intérêt endogènes. Nous montrons que, en l’absence d’imperfection, le bien être est accru dans tous les cas, que la générosité du régime de retraite soit maintenue ou que la pression fiscale reste stable, sauf s’il y a altruisme intergénérationnel.

On perfect equilibria in stochastic models of growth with intergenerational altruism

The well-known model of altruistic growth/strategic bequest is studied. A stochastic transition function is considered and fairly general sufficient conditions for the existence of Markov-stationary subgame-perfect equilibrium are given. Also some special cases in which the equilibrium policy is continuous and nondecreasing are discussed.

CHILD LABOUR IN VIETNAM

Abstract. The paper tests the explanatory power of a theoretical model of household decisions about child labour and school enrolment and analyses the determinants of child labour in Vietnam, a country that is experiencing a rapid transition toward a market economy. The theoretical framework, used as a benchmark, is in the spirit of the ‘new household’ economics and links household decisions about schooling and child labour to intergenerational altruism and to human capital investment. On this basis, we analyse the evolution and determinants of child labour using two household surveys (1993 and 1998) for Vietnam.

Intergenerational conflict and the political economy of school spending

In this paper we use survey data to examine support among voters from different age cohorts for public school spending. The survey asked potential voters in California how they intended to vote on two initiatives, one a statewide initiative that would increase spending on public schools throughout the state and the other a local initiative that would increase spending only in the respondent's local school district. We find that support for school spending generally declines with age, but that older voters are more willing to support local spending on schools than state spending. We examine two explanations for this voting pattern: the capitalization of local spending into housing values and intergenerational altruism. Our results do not strongly favor one explanation over the other, suggesting that both factors probably play important roles in sustaining support among older voters for local school spending.

Public pensions and growth

This paper investigates the relationship between the size of an unfunded public pension system and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient.

Intergenerational Altruism and Neoclassical Growth Models

This chapter surveys intergenerational altruism in neoclassical growth models. It first examines Barro's approach to intergenerational altruism, whereby successive generations are linked by recursive altruistic preferences. Individuals have an altruistic concern only for their children, who in turn also have altruistic feelings for their own children. Through such a recursive relation all generations of a single family (a dynasty) are linked together by a chain of private intergenerational transfers, countervailing any attempt by the government to redistribute resources across generations. This offsetting of public by private transfers operates only if bequests are positive. This is an important qualification to Barro's debt neutrality result. The conditions under which the Ricardian equivalence (debt neutrality) theorem applies are specified. The effectiveness of fiscal policy is further analysed in the context of an economy populated by heterogeneous families differing with respect to their degree of intergenerational altruism. We also examine other forms of dynastic altruism consistent with Barro's recursive definition of altruism, ascending altruism and two-sided altruism. These forms could be expected to deliver debt neutrality unconditionally, as families leaving zero bequests could be families characterised by child-to-parent gift under ascending altruism. We find that this is not the case and no form of dynastic altruism therefore ensures debt neutrality without condition. Even under two-sided altruism there are cases, in which both bequests and gifts are constrained and fiscal policy remains effective. We then review ad hoc forms of altruism and their implications for the debt neutrality results. Only one specific form of ad hoc altruism always guarantees debt neutrality; this form departs from the recursive approach underpinning dynastic altruism, with its objective function being formally equivalent to that of the social planner. Extensions to the fields of education and environmental are presented in a final section.

Public Goods and Posterity: An Empirical Test of Intergenerational Altruism

Менеджеры в общественном секторе и некоммерческих организациях часто вынуждены принимать решения относительно количества и ассортимента производимых общественных благ. При принятии решения необходимо сопоставить издержки и выгоды. Один из наиболее сложных вопросов оценки заключается в предположении, что люди хотят производить или сохранять общественные блага для будущих поколений. Неужели люди на самом деле думают о будущем, когда жертвую свои средства в благотворительные фонды, платят налоги или голосуют на выборах? В статье предлагается статистическая проверка данного утверждения и иллюстрируется ее применение для случая благотворительных пожертвований.

Income Redistribution Effect Of Public Pensions Between Dynastic Families

This paper investigates income transfers between dynastic families caused by a public pension system. Using Japanese data, we present simulation results based on a model in which intergenerational altruism works, and income distribution exists between and within generations. The growth rates of income and population, as well as the formulation for the determination of the contribution rate and the payment rate, are crucial to determine both the qualitative and quantitative effects. Especially, under negative income growth over generations, pay–as–you–go public pensions can cause negative income redistribution.

Simulating the Transmission of Wealth Inequality

The role of bequests in propagating wealth inequality has long interested economists, policymakers, and social commentators. Josiah Wedgwood’s (1929) study of wealthy Britons indicated that most had received large inheritances and suggested that one-third owed their position in the wealth distribution entirely to inheritance. These findings and those of J. E. Meade (1966), C. D. Harbury and D. M. W. N. Hitchens (1979), and Paul L. Menchik (1979) support the public’s general view that restricting inheritances by taxing estates or inheritances or by forcing annuitization would lead to a more equal wealth distribution. Would wealth inequality actually be reduced if inheritances and, for that matter, all private inter vivos transfers were eliminated? The answer is not obvious. Private wealth holdings would, in this case, be traced to precautionary and retirement saving, with the distribution of wealth determined by the distributions of aftertax labor earnings, rates of return, demographics, and saving preferences. Household labor income is distributed very unequally because of differences in genetic endowments, educational opportunities, parental care, health, labor– leisure preferences, assortative mating, and a host of other factors. Rates of return earned on saving also vary widely across households for systematic and nonsystematic reasons. Also, as recently documented by Steven F. Venti and David A. Wise (2000), there is a great deal of heterogeneity with respect to saving behavior. Thus, a high degree of wealth inequality would exist in the absence of bequests and inter vivos gifts. Adding them back into the mix could actually reduce overall wealth inequality if they were made to children with relatively low earnings, low rates of return, or poor saving discipline or were made primarily to children whose parents died young. Clearly, understanding the precise role that bequests and gifts play in wealth inequality requires building a fairly elaborate model that can control for different factors and their interactions. The model we co-developed in Gokhale et al. (2001) to study U.S. wealth inequality, which we extend here, represents a step in this direction. The model features 88 overlapping generations. It incorporates marriage, fertility patterns, random death, heterogeneous skill endowments and rates of return, assortative mating based on skills, skill inheritability, progressive income taxation, and wealth annuitization via Social Security. Given the strong evidence against intergenerational altruism reported in Kotlikoff (2002) and the dictates of tractability, we modeled bequests as arising solely from imperfect annuitization. The model generates a realistic ratio of aggregate wealth to aggregate labor income, a realistic flow of bequests relative to the stock of wealth, and a realistic distribution of wealth at retirement, including the share of wealth held by those in the top tail of the distribution. Bequests play a limited role in influencing wealth inequality, the major determinant of which is skill (earnings) differences. Interestingly, bequests serve to equalize the distribution of wealth because, when children inherit, wealth is determined by the random date of parent’s death. In contrast, Social Security plays a disequalizing role. As stressed by Martin S. Feldstein (1976), Social Security annuitizes a much larger share of the assets of the poor than of the rich, leaving them with relatively little fungible wealth.

The macroeconomics of fertility in small open economies: A test of the Becker-Barro model for The Netherlands and New Zealand

Becker and Barro (1988) formulated a theoretical model which identified a range of macroeconomic variables which can temporarily or permanently affect fertility in small open economies. This article tests the Becker-Barro model with relevant data which covers most of the 20th century for two small open economies, namely The Netherlands and New Zealand. The results show that government subsidies for having children have a strong positive effect on fertility, while the provision of public pensions has a strong negative effect. The degree of intergenerational altruism appears to have been declining. Moreover, there is only weak support for the hypothesis that real interest rates positively influence fertility.

Public Pensions and Growth

System and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient.