Endogenous borrowing constraints, the intergenerational state, and wealth inequality
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PhD Seminar (Econ)
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How might public spending ameliorate wealth inequality and drive economic growth? In an overlapping generations model, we study the effects of a public-education-public-pension (PEPP) scheme with inter-generational transfers. In contrast to previous studies on PEPP, we adopt an endogenous borrowing approach where altruism is a monetary bequest to one’s child rather than investment in their human capital as is common in the literature. Though differences in bequest result in wealth inequality and an incomplete credit market that threaten growth, we show that public policy can “complete” the market, eliminate inequality, and increase growth.
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