Working Paper: NBER ID: w2298
Authors: Andrew B. Abel
Abstract: This paper presents a general equilibrium model with logarithmic preferences and technology. If the non-negativity constraint on bequests is strictly binding, then the bequest motive is characterized as inoperative. After determining the conditions for operative and inoperative bequest motives, the paper examines the effect of pay- as- you-go social security on the stochastic evolution of the capital stock. If the non-negativity constraint on bequests is strictly binding, then an increase in social security reduces the unconditional long- run expected capital stock. If the social security taxes and benefits are large enough, then the non-negativity constraint ceases to bind, and further increases in social security have no effect. This paper extends previous analyses by examining bequest behavior outside of the steady state and by allowing a non-degenerate cross-sectional distribution in the holding of capital.
Keywords: fiscal policy; bequest motives; social security; capital accumulation
JEL Codes: H2; D9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in social security (H55) | Decrease in unconditional long-run expected capital stock (E22) |
| Non-negativity constraint on bequests is binding (D15) | Decrease in unconditional long-run expected capital stock (E22) |
| Strength of bequest motive > Critical value (D15) | Bequest motive is operative (D64) |
| Bequest motive is operative (D64) | Increases in social security do not affect consumption or capital accumulation (E21) |
| Dynamic efficiency (C69) | Possibility of operative bequests (D64) |