Demonstration effect and dynamic efficiency

Emmanuel Thibault

Economics Letters, 2016, vol. 147, issue C, 42-45

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 (search for similar items in EconPapers)
JEL-codes: C D O (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176516303111
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Demonstration Effect and Dynamic Efficiency (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:147:y:2016:i:c:p:42-45

DOI: 10.1016/j.econlet.2016.08.016

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().