Fiscal Policy and Endogenous Growth in a Bequest-Constrained Economy

Peter Rangazas

Oxford Economic Papers, 1996, vol. 48, issue 1, 52-74

Abstract: Evidence suggests that the vast majority of planned altruistic transfers between generations are human capital investments in children (households are generally bequest constrained). This paper demonstrates that empirically based calibrations of simple overlapping generations models with altruism generate binding bequest constraints with realistic endogenous growth rates and returns to capital. The author also shows how intergenerational and intragenerational redistributions of wealth affect long-run growth in bequest-constrained economies. Redistribution is a feature of fiscal policy abstracted away from by the standard infinitely lived representative agent models used to analyze endogenous growth. Copyright 1996 by Royal Economic Society.

Date: 1996
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