Thibault, Emmanuel (2016) Demonstration Effect and Dynamic Efficiency. Economics Letters, 147. pp. 42-45.

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Identification Number : 10.1016/j.econlet.2016.08.016


Can dynamic inefficiency be remedied by intergenerational family transfers? The issue matters for the connection between fiscal policy and economic growth. Yet family transfers have mostly been narrowly cast as altruistic. I show that an alternative motive the demonstration effect, whereby parents transfer to mold preferences of children can generate vastly different results: family transfers are positive under dynamic inefficiency. These transfers are instrumental to depress capital accumulation so as to approach the Golden Rule capital stock. Intuitively, family transfers from youth to old age reduce capital accumulation. However, family transfers are nil under dynamic efficiency. Unlike public debt, both capital accumulation and welfare are not worsened.

Item Type: Article
Language: English
Date: October 2016
Refereed: Yes
Uncontrolled Keywords: OLG model, Dynamic efficiency, Intergenerational family transfers
JEL Classification: C62 - Existence and Stability Conditions of Equilibrium
D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
O41 - One, Two, and Multisector Growth Models
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 01 Sep 2016 09:48
Last Modified: 02 Apr 2021 15:54
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