On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization

Cass, David

doi:10.1016/0022-0531(72)90149-4

Cited by 215 publications

(146 citation statements)

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“…An alternative policya fertility dependent PAYG system-on the other hand, can be used to implement an A−efficient allocation. Interestingly, we find that the same allocation can also be im- Samuelson (1958), Cass (1972), Balasko and Shell (1980) Eckstein and Wolpin (1985), Abio, Mahieu, and Patxot (2004), Lang (2005), Wigniolle (2007, 2009), Conde-Ruiz, Giménez, and Pérez-Nievas (2010) with altruism Barro (1974), Burbidge (1983) Razin and Ben-Zion (1975), Pazner and Razin (1980), This Paper plemented through birth subsidies financed by government debt and taxes. 11 This provides a potential rationale for currently observed government policies that subsidize children.…”

Section: Introductionmentioning

confidence: 75%

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Property rights and efficiency in OLG models with endogenous fertility

Schoonbroodt

Tertilt

2014

Journal of Economic Theory

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Is there an economic rationale for pronatalist policies? We propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium. The friction is caused by the lack of ownership of children: if parents have no claim on their children's income, the private benefit from producing a child can be smaller than the social benefit. We analyze an overlapping-generations model with fertility choice and parental altruism. Ownership is modeled as a minimum constraint on transfers from parents to children. Using the efficiency concepts proposed in Golosov, Jones, and Tertilt (2007), we find that whenever the transfer floor is binding, fertility choices are inefficient. Second, we show that the usual conditions for efficiency are not sufficient in this context. Third, in contrast to settings with exogenous fertility, a PAYG social security system cannot be used to implement efficient allocations. To achieve an efficient outcome, government transfers need to be tied to fertility choice. JEL Classification: D6, E1, H55, J13

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Section: Introductionmentioning

confidence: 75%

“…In equilibrium, the return to investing in savings is r, while the return 21 See also Cass (1972) and Balasko and Shell (1980). to bequests depends on the utility function.…”

Section: Proposition 10mentioning

confidence: 99%

Property rights and efficiency in OLG models with endogenous fertility

Schoonbroodt

Tertilt

2014

Journal of Economic Theory

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“…Clearly, these results show that the introduction of consumption externalities affects the operativeness of the bequest motive and, thus, affects the dynamic efficiency of the equilibrium path (Cass, 1972). …”

Section: Proofmentioning

confidence: 82%

“…In contrast, the efficiency analysis of our paper is based on the comparison between the model of Barro (1974) with consumption externalities and the corresponding planner problem. As shown by Abel (2005), when the bequest motive is inoperative, inefficiency is due to both consumption externalities and the typical dynamic inefficiency resulting in capital overaccumulation (Cass, 1972). However, when the bequest motive is operative the only source of inefficiency are the consumption externalities.…”

Section: Introductionmentioning

confidence: 99%

Estate taxes, consumption externalities, and altruism

Alonso-Carrera¹,

Caballé²,

Raurich³

2008

Journal of Public Economics

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We study how the introduction of consumption externalities affects the efficiency of the dynamic equilibrium in an economy displaying dynastic altruism. When the bequest motive is inoperative consumption externalities affect the intertemporal margin between young and old consumption and thus modify the intertemporal path of consumption and capital. The optimal tax policy that solves this intertemporal inefficiency consists of a tax on capital income and a pay-as-yougo social security system. The later solves the overaccumulation of capital due to the inoperativeness of the bequest motive and the former solves the inefficient allocation of consumption due to consumption externalities. When the bequest motive is operative consumption externalities only cause an intratemporal inefficiency that affects the allocation of consumption between the generations living in the same period but do not affect the optimality of the capital stock level. This suboptimal allocation of consumption implies in turn that the path of bequest is also suboptimal. The optimal tax policy in this case consists of an estate tax and a capital income tax. The estate tax corrects the intratemporal inefficiency but generates an intertemporal inefficiency which is corrected by means of an appropriate capital income tax. JEL classification codes: E21, E13, E62.

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“…Consider a deterministic economy with λ = 0. This economy is dynamically efficient in the sense of Cass (1972) iff Proof. See Appendix A.…”

Section: Proposition 6 Under Assumptions 1 and 6 A Marginal Introdumentioning

confidence: 99%

Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk

Harenberg

Ludwig

2014

SSRN Journal

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Many countries operate large social security systems. Social security can increase economic efficiency and provide insurance against household risks for which no private markets exist. However, social security systems also impose costs by distorting prices and decisions. The question arises whether the benefits of social security outweigh the costs.To study the welfare consequences of introducing a social security system this paper develops an analytically tractable model with two overlapping generations where households face many different sources of risks over their life-cycle. Key risks for the analysis of social security are idiosyncratic risks -e.g., the risk of unemployment -and aggregate risks -i.e., the risk of aggregate productivity losses which leads to reductions of wages and asset returns. Our analysis on the welfare effects of social security in light of these risks differs from the previous literature in that, thus far, prior studies have only considered models with one type of risk in isolation. One strand of the literature has examined social security when only aggregate risk is present. The other strand has only considered idiosyncratic risk.In our model we find that the two risks interact in multiple ways and influence the welfare effects of introducing a social security system. As a result, we show that these effects are less strong on the welfare costs of crowding out than on the welfare gains from insurance. Hence, the interactions of risks increase the total welfare benefits of social security.The findings of this paper must be investigated in a more realistic quantitative model which is suitably calibrated. This is done in our companion paper, Harenberg and Ludwig (2014). There we document that indeed the interactions of risks overturn conventional findings on the welfare effects of social security and we conclude that the introduction of a minimum flat pension is welfare improving once all household risks are appropriately taken into account. Social Security in an Analytically AbstractWhen markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations and demonstrate that they interact over the life-cycle. The interactions appear even though the two risks are orthogonal and they amplify the welfare consequences of introducing social security.On the one hand, the interactions increase the welfare benefits from insurance. On the other hand, they can in-or decrease the welfare costs from crowding out of capital formation. This ambiguous effect on crowding out means that the net effect of these two channels is positive, hence the interactions of risks increase the total welfare benefits of social security.

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On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization

Cited by 215 publications

References 5 publications

Property rights and efficiency in OLG models with endogenous fertility

Property rights and efficiency in OLG models with endogenous fertility

Estate taxes, consumption externalities, and altruism

Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk

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