Strategic Behavior, Debt Neutrality and Crowding Out
نویسنده
چکیده
This paper presents an overlapping generations model in which children seek to manipulate the size of the end-of-life bequest they receive from the parent. I first use numerical simulations to show this intergenerational strategic behavior does not negate the debt neutrality assertions of Ricardian equivalence. Then, by introducing capital gains and inheritance taxes, I show the crowding out effect of government debt is notably smaller in models with strategic behavior; manipulation by children increases the importance of bequests, which forces parents to save (and bequeath) a larger portion of a debtfinanced tax cut. In spite of the neutrality of debt under lump sum taxes, including intergenerational strategic behavior can significantly influence the outcome of government tax policies.
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