Demonstration Effect and Dynamic Efficiency

Emmanuel Thibault

No 16-616, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We show that contrary to conventional wisdom intergenerational family transfers dominate fiscal policies as a remedy to the dynamic inefficiency arising in a Diamond (1965, American Economic Review) economy with logarithmic utility and Cobb-Douglas technology. Using the demonstration-effect approach popularized by Cox and Stark (2005, Journal of Public Economics), we prove that, differently from public debt, family transfers can serve the role of automatic stabilizers. Indeed, they are nil under dynamic efficiency, implying that both capital accumulation and welfare are not worsened. They are positive under dynamic inefficiency, and instrumental to depress capital accumulation so to approach the Golden Rule capital stock.

Keywords: OLG model; Dynamic efficiency; Intergenerational family transfers (search for similar items in EconPapers)
JEL-codes: C62 D91 O41 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-dge and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.tse-fr.eu/sites/default/files/TSE/docum ... /2016/wp_tse_616.pdf Full text (application/pdf)

Related works:
Journal Article: Demonstration effect and dynamic efficiency (2016)
Working Paper: Demonstration Effect and Dynamic Efficiency (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:30012

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().