The Transfer Problem and Intergenerational Allocation in an Overlapping Generations Model

Kojun Hamada, Akihiko Kaneko, Mitsuyoshi Yanagihara

    Research output: Contribution to journalArticle

    Abstract

    We investigate the transfer problem between two countries in the steady state in a one-sector overlapping generations model and explain how transfers should be shared between the young and old generations of the donor country and allocated across the generations of the recipient country. Except at the golden rule of capital accumulation, the ratios of the burden and distribution of transfers between the young and old generations affect welfare. We obtain the following results. First, the sharing of the transfer burden in the donor country depends on the relative size of two effects, namely, a negative direct effect and a positive indirect effect. If the former exceeds the latter, it is preferable for the donor country to allocate all of the transfer burden to the old generation and vice versa. Second, from the viewpoint of welfare maximization, it is preferable for the recipient country to distribute all of the transfers to the young generation. In contrast to the existing literature, these results suggest that the setting whereby the young generation of the donor country defrays all transfer costs may not be justifiable from the viewpoint of donor welfare maximization.

    Original languageEnglish
    Pages (from-to)599-615
    Number of pages17
    JournalInternational Economic Journal
    Volume30
    Issue number4
    DOIs
    Publication statusPublished - 2016 Oct 1

      Fingerprint

    Keywords

    • intergenerational allocation
    • overlapping generations model
    • recipient immiserization
    • Transfer paradox

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

    Cite this