Is Everything Neutral?

B. Douglas Bernheim and Kyle Bagwell

Journal of Political Economy, 1988, vol. 96, issue 2, 308-38

Abstract: In this paper, the authors critique the assumption on which Robert J. Barro's dynastic model is predicated and a rgue that this framework is not a suitable abstraction in contexts in which the objective is to analyze the effects of public policies. Th ey formally consider a world in which each generation consists of man y distinct individuals and show that family linkages form complex net works, in which each individual may belong to many dynastic groupings. The resulting proliferation of linkages between families gives rise to a host of neutrality results, including the irrelevance of all public distributions, distortionary taxes, and prices. Since these results are not at all descriptive of the real world, the authors conclude that, in some fundamental sense, the world is not even approximatel y dynastic. Copyright 1988 by University of Chicago Press.

Date: 1988
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