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http://ssrn.com/abstract=476108
 
 

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Borrowing Constraints and Two-Sided Altruism with an Application to Social Security


Steven J. Davis


University of Chicago; National Bureau of Economic Research (NBER)

David Altig


Federal Reserve Banks - Federal Reserve Bank of Atlanta; Federal Reserve Bank of Cleveland; University of Chicago - Booth School of Business

November 1991

NBER Working Paper No. w3913

Abstract:     
We develop the implications of borrowing constraints and two-sided altruism in an overlapping generations framework with agents who live three periods. Our analysis identifies six equilibrium patterns of intertemporal and intergenerational linkages in the no-loan economy, one of which corresponds to the traditional lifecycle model, and one of which corresponds to Barro's dynastic model. Novel linkage patterns involve parent-to-child transfers early in the life cycle, child-to-parent gifts late in the life cycle, or both. Capital accumulation behavior and the consequences of fiscal policy interventions depend, often critically, on which linkage patterns prevails. We show how unfunded social security interventions can significantly depress aggregate capital accumulation, even when every generation is linked to its successor generation by altruistic transfers. We also derive a non-Ricardian neutrality result for gift-motive economies that holds whether or not borrowing constraints bind and whether or not parent and child are connected by an operative altruism motive at all points in the life cycle.

Number of Pages in PDF File: 35

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Date posted: December 28, 2006  

Suggested Citation

Davis, Steven J. and Altig, David, Borrowing Constraints and Two-Sided Altruism with an Application to Social Security (November 1991). NBER Working Paper No. w3913. Available at SSRN: http://ssrn.com/abstract=476108

Contact Information

Steven J. Davis
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
David Altig (Contact Author)
Federal Reserve Banks - Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
Federal Reserve Bank of Cleveland ( email )
East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2041 (Phone)
University of Chicago - Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
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