NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Bequest-Constrained Economy: Welfare Analysis

Marc Nerlove, Assaf Razin, Efraim Sadka

NBER Working Paper No. 2779 (Also Reprint No. r1240)
Issued in December 1988
NBER Program(s):   EFG   PE

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.

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Document Object Identifier (DOI): 10.3386/w2779

Published: Journal of Public Economics, Vol. 37, pp. 203-220, (1988). citation courtesy of

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