John Laitner

Structural Change and Economic Growth

This paper presents a model in which a countrys measured average propensity to save endogenously rises when its economy industrializes. The model has agricultural and manufacturing sectors. Only agriculture uses land. If at early dates income per capita is low, agricultural consumption is important, land is valuable, and capital gains on land may constitute most wealth accumulation, leaving the countrys NIPA APS low. If exogenous technological progress raises incomes over time, Engels law shifts demand to manufactured goods. Then lands portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise.

Bequest motives : A comparison of Sweden and the United States

This paper reviews four well--known theoretical models of private bequest behavior, notes their differing implications for public policy, and discusses a way of empirically discriminating among them. Then it implements the test with micro data from Sweden (LLS) and the U.S. (PSID). The so-called altruistic (or dynastic) model, which, among the four models, has perhaps the most wide-ranging implications for policy, receives some, though limited, support in the LLS, but not the PSID. The inter-country difference is statistically significant. There is evidence of a potential complication due to a dependence of childrens education on parents financial status in the case of the U.S.

Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers

Abstract This paper develops a model of private savings behavior in which households care about their descendants, cannot have negative net worth, and have lifetime earnings depending on random draws from an exogenous distribution of abilities. The elements interact: very lucky parents are likely to leave large estates; constrained children are unusually likely to receive intergenerational transfers. The paper proves the existence of a stationary cross-sectional distribution of wealth, endogenously determines where liquidity constraints will bind, and shows that the long-term interest rate must be such that Ricardian neutrality fails. Its last section generates several illustrative numerical simulations.

Technological Change and the Stock Market

Tobins average q has usually been well above 1, but fell below 1 during 1974-1984. Our model explains this pattern and reconciles it with unchanging aggregate investment. The stock market value in the numerator of q reflects ownership of physical capital and knowledge, but the denominator measures just physical capital. Therefore, q is usually above 1. Periodic arrivals of important new technologies, such as the microprocessor in the 1970s, suddenly render old knowledge and capital obsolete, causing the stock market to drop. National accounts measures of physical capital miss this rapid obsolescence. Then q appears to drop below 1. (JEL E44, O3, O41)

Secular Changes in Wealth Inequality and Inheritance

Data suggest that the distribution of wealth among households in the USA and UK has become more equal over the last century, though, at least for the USA, the pattern may have reversed recently. This paper shows that a model in which all households save for life-cycle reasons and some for dynastic purposes as well offers a possible or partial explanation: the model predicts rising cross-sectional equality of wealth when longevity increases. There may also be implications about very recent changes: expansion of social security programmes and government deficits can lead toward more wealth inequality. Slower growth may do the same.

Wealth, Inequality, and Altruistic Bequests

This paper examines the role of bequests and inter vivos gifts in the U.S. economy, considering their importance in determining (i) the economy’s aggregate capital stock, (ii) the distribution of private net worth, and (iii) public policy outcomes and options. It focuses on several recent calibrated simulations.

Tax Changes and Phase Diagrams for an Overlapping Generations Model

The literature evaluating tax changes within an intertemporal general equilibrium framework subdivides into representative agent and overlapping generations formulations. Papers in the former class have developed techniques analogous to those routine for static analyses. I show that the same general approach works for the overlapping generations model. The context is the system from Auerbach and Kotlikoffs Dynamic Fiscal Policy. The proposed methodology allows one to examine stability and determinancy issues for the model, it deals precisely with small policy changes, and it can easily handle bundles of changes. I present comparative static results for comparison with existing work.

Bequests, Golden-age Capital Accumulation and Government Debt

The purpose of this paper is to examine the golden ages of an infinite time horizon economy in which individual families have finite life-spans but are connected with other generations through bequests. We construct a model of family bequest behaviour based on utility maximization and combine it with a simple, aggregative description of production. We then show that the overall model always has at least one steady-state equilibrium. Although we do not argue that bequest-motivated saving must necessarily play a major role in total capital accumulation, we do derive the following result: bequests will become an overwhelmingly important source of capital in situations in which the steady-state interest rate approaches a level P 1 derived in our analysis. Thus, at minimum, bequest behaviour has a safety value role, preventing a steady-state interest rate too much above the golden rule level and, hence, putting a lower bound on potential steady-state capital-to-labour ratios. We also present a second, somewhat different, application of our steady-state model: we show that the government can always change the steady-state interest rate with a properly designed shift between tax and debt financing of its spending. This result conflicts with the argument that government debt is not a component of private aggregate net worth since the discounted value of future debt service should exactly counterbalance the value now of any new government bonds issued. The organization of this paper is as follows. The first section sets up our bequest model for families. The second establishes the existence of at least one steady state and derives a lower bound for the aggregate capital-to-labour ratio. The third discusses government debt. All proofs for the propositions of this paper are in a separate appendix at the end.

Earnings within Education Groups and Overall Productivity Growth

To offer a possible interpretation for recent empirical findings on earnings growth, this paper constructs a simple model with endogenous human capital investment, a distribution of natural abilities, and unbiased technological progress. The model predicts that in the long run, average earnings within any education group will grow more slowly than average wages overall. It also predicts that average earnings in high‐education groups ultimately will rise relative to average earnings in low‐education groups. In the model, these processes do not imply secular increases in the degree of inequality in the overall cross‐sectional distribution of earnings.

Chapter 5 Intergenerational and interhousehold economic links

Publisher Summary This chapter discusses two theoretical frameworks that economists use to analyze links between households. The first is based on altruistic preferences and the second framework falls under the heading “transactions cost approach.” Altruistic and non-altruistic transfers can link together households, most likely households of different generations within the same family line. The relatives may find advantages to engaging in joint production or purchasing services from one another outside of markets. One implication certainly is that not all intra-household interactions need involve altruism. A second is that it cannot be assumed that measured monetary flows passing among relatives necessarily constitute “transfers”—as opposed to payments for goods and services or for subsequent repayment with interest. A third is that transactions–cost formulations may be most applicable, where participant incomes and sums transacted are low. Although, this chapter analyzes altruism and exchange separately, in practice the two may often accompany one another—with altruism reducing enforcement difficulties in interfamily exchanges.