This paper uses historical u.S. data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation. The evidence presented indicates that intergenerational transfers account for the vast majority of aggregate U.S. capital formation; only a negligible fraction of actual capital accumulation can be traced to life cycle or "hump" savings.~major difference between this study and previous investigations of this issue is the use of actual rather than hypothetical longitudinal age consumption profiles. These profiles are simply too flat to generate substantial life cycle savings. This paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers. Life~cle models of savings which emphasize -sav4ngs.forr-e-t-kemen-t-as-the dominate form of capital accumulation sh()t11e.t__ g:l,YIiLW~Y tomodelswhiGh-emp.has.betherather
What is the basic economic decision-making unit? Is it the household or the extended family? This question is fundamental to economic analysis and policy design. The answer given by the Life Cycle and Keynesian models is that the economic unit is the household. According to these models, members of particular households act selfishly and do not fully share resources with extended family members in other households. Hence, altering the distribution of resources across households within the extended family will alter the consumption and labor supply of those households who acqUire or lose resources. In contrast to the Life Cycle and Keynesian models, the altruism model implies that the extended family is the basic economic decision-making unit. According to this model the extended family is linked through altruism and, as a result, acts as if it fully shares resources. In the altruism model nondistortionary changes in the distribution of resources across households within the extended family will have no effect on the consumption or labor supply of any of its members.Despite its importance, the boundaries of economic decision-making units have not, to our knowledge, been examined directly with micro data. Stated differently, the altruism model has not been tested against the Life Cycle and Keynesian alternatives with such data. This paper uses matched data on parents and their adult children, contained in the Panel Study of Income Dynamics, to perform such a test. In essence our test asks whether the distribution of consumption and labor supply across households within the extended family depends on the distribution of resources across households within the extended family.Our findings provide quite strong evidence against the altruism model. The distribution of resources across households within the extended family is a highly significant (statistically and economically) determinant of the distribution of consumption within the extended family. This finding holds for the entire sample as well as the subsample consisting of rich parents and poor children.In addition to showing that the distribution of extended family resources matters for extended family consumption, we test the life cycle model by asking whether only own resources matter, i.e., whether the resources of extended family members have no affect On a household's consumption. Our results indicate that extended family member resources have, at most, a modest effect on household consumption after one has controlled for the fact that extended family resources help predict a household's own permanent income.
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This paper uses a new, large-scale, dynamic life-cycle simulation model to compare the welfare and macroeconomic effects of transitions to five fundamental alternatives to the U.S. federal income tax, including a proportional consumption tax and a flat tax. The model incorporates intragenerational heterogeneity and a detailed specification of alternative tax systems. Simulation results project significant long-run increases in output for some reforms. For other reforms, namely those that seek to insulate the poor and initial older generations from adverse welfare changes, long-run output gains are modest.
This paper presents a set of generational accounts (GAS) that can be used to assess the fiscal burden current generations are placing on future generations. The GAs indicate the net present value amount that current and future generations are projected to pay to the government now and in the future.The generational accounting system represents an alternative to using the federal budget deficit to gauge intergenerational policy. From a theoretical perspective, the measured deficit need bear no relationship to the underlying intergenerational stance of fiscal policy.Within the range of reasonable growth and interest rate assumptions the difference between age zero and future generations in GAs ranges from 17 to 24 percent. This means that if the fiscal burden on current generations is not increased relative to that projected from current policy (ignoring the just enacted federal budget deal) and if future generations are treated equally (except for an adjustment for growth) the fiscal burden facing all future generations over their lifetimes will be 17 to 24 percent larger than that facing new borns in 1989. The just enacted budget will, if it sticks, significantly reduce the fiscal burden on future generations.
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