Intergenerational Transfers Economic Growth and Income Distribution

Itzhak Zilcha

No 275619, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: We consider an Overlapping-generations economy where the aggregative production process uses physical capital and human capital. The human capital level of each individual is determined by the direct investment in education and some random "ability". The parents' investment in the education of their offspring is motivated by altruism. We distinguish between two types of transfers: Investment of parents in the education of their offspring, which affects her future income, and the direct capital transfer (the 'bequest motive). We show that the intensity of each type of altruism plays an important role on the equilibrium growth and the income distributions, but the results differ significantly. Comparing competitive equilibria from the same initial capital and human capital distributions we derive the following results: (a) When altruism is more 'education-inclined', then economic growth is higher and the intragenerational income distributions are more equal (less equal), in all periods, if the aggregate production function's elasticity of substitution is larger (smaller) than 1; (b) When altruism is more 'bequestinclined', the growth rate is lower and the impact on the intragenerational distributions of income depends on the size of the elasticity of substitution. Public provision of education (financed by taxing wage incomes) reverses the results in (b).

Keywords: Financial Economics; Labor and Human Capital (search for similar items in EconPapers)
Pages: 38
Date: 1996-08
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Citations: View citations in EconPapers (1)

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Working Paper: Intergenerational Transfers, Economic Growth and Income Distribution (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275619

DOI: 10.22004/ag.econ.275619

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