Abstract
A subsequent generations model is used in order to characterize consumption allocation under the future generation's income uncertainty. Altruistic concerns towards future generations give rise to 'precautionary bequests' which act as a hedge on risk. It is shown that given a first-order correlation between mean future income and the present generation's income, government can provide a Pareto improvement through a tax-transfer policy with universal participation. This policy acts as a substitute for precautionary bequests. Distributional aspects of government tax-transfer policy are also discussed.
| Original language | English |
|---|---|
| Pages (from-to) | 477-495 |
| Number of pages | 19 |
| Journal | Journal of Public Economics |
| Volume | 53 |
| Issue number | 3 |
| DOIs | |
| State | Published - Mar 1994 |
Bibliographical note
Funding Information:Jerusalem, Jerusalem 91905, Israel. *This paper is drawn from the first chapter of my Ph.D. thesis. I am grateful to E. Sheshinski and two anonymous referees of the journal for helpful suggestions. 1 also wish to thank L. Kotlikoff, P. Weil and S. Yitzhaki for their comments. All remaining errors are my own responsibility. Research was supported by a grant from the Brookdale Institute of Gerontology and Adult Human Development in Israel, and Eshel Association for the Planning and Development of Services for the Aged in Israel.