A Bequest-Constrained Economy: Welfare Analysis

Marc Nerlove, Assaf Razin and Efraim Sadka

No 2779, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Bequest constraints have played a major role in discussions of debt neutrality but their welfare implications were not sufficiently dealt with in the literature. In this paper we focus on the welfare implications of bequest constraints. We found that when institutional constraints to the transfer of resources from children to their parents exists the welfare of the parents' generation may be improved by an old age security scheme. Such a scheme is justified not by income redistribution consideration, as is typically the case, but rather on pure efficiency grounds. Due to its intergenerational transfer role the social security scheme is Pareto-improving with altruistic parents if, in addition, the real income effect which tends to raise children consumption is relatively strong.

Date: 1988-12
Note: EFG PE
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Published as Journal of Public Economics, Vol. 37, pp. 203-220, (1988).

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Journal Article: A bequest-constrained economy: Welfare analysis (1988)
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