Working Paper: NBER ID: w1827
Authors: Laurence J. Kotlikoff; Lawrence H. Summers
Abstract: This paper responds to Franco Modigliani's recent critique of our 1981 paper on the importance of intergenerational transfers for U.S. savings. Modigliani's paper is the latest salvo in a long running debate over the importance of intergenerational transfers in explaining savings behavior. While Modigliani corrects an algebraic error of minor consequences in our earlier paper, its correction does not, in our view, call into question the fundamental conclusion that life cycle considerations can account for only a small part of aggregate capital accumulation. Inevitably, it is possible to challenge aspects of any complex empirical calculation. Modigliani's attacks seem to us incorrect in most cases and generally fail to address our primary method of determining the importance of intergenerational transfers. Many considerations at least as important as those raised by Modigilani suggest that our method produces an overestimate of the importance of life cycle wealth.
Keywords: Intergenerational Transfers; Wealth Accumulation; Life Cycle Hypothesis; Savings Behavior
JEL Codes: D91; E21; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| life cycle wealth (E21) | total wealth accumulation (E21) |
| life cycle model (O41) | observed saving patterns (E21) |
| intergenerational transfers (D15) | total wealth accumulation (E21) |
| intergenerational transfers (D15) | life cycle wealth (E21) |