The Contribution of Intergenerational Transfers to Total Wealth: A Reply

This paper responds to Franco Modigliani's recent critique of our 1981 paper on the importance of intergenerational transfers for U.S. savings. Modigliani's paper is the latest salvo in a long running debate over the importance of intergenerational transfers in explaining savings behavior. While Modigliani corrects an algebraic error of minor consequences in our earlier paper, its correction does not, in our view, call into question the fundamental conclusion that life cycle considerations can account for only a small part of aggregate capital accumulation. Inevitably, it is possible to challenge aspects of any complex empirical calculation. Modigliani's attacks seem to us incorrect in most cases and generally fail to address our primary method of determining the importance of intergenerational transfers. Many considerations at least as important as those raised by Modigilani suggest that our method produces an overestimate of the importance of life cycle wealth.

The Role of Intergenerational Transfers in Aggregate Capital Accumulation

This paper uses historicaI U.S. data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation. The evidence presented indicates that intergenerational transfers account for the vast majority of aggregate U .S. capital formation; only a negligible fraction of actual capital accumulation can be traced u, life-cycle or "hump" savings. A major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age-earnings and age-consumption profiles. These profiles are simply too flat to generate substantial lifecycle savings. This paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers. fife-cycle models of savings that emphasize savings for retirement as the dominant form of apical accumulation should give way to models that illuminate the determinants of intergenerational transfers.

Tax Incidence

This paper surveys major issues in the theory of tax incidence. These include the incidence of taxes in dynamic as well as static economies and open as well as closed economies. The survey does not represent a comprehensive review of the literature, rather it is offered to the reader as a pedoqogical piece that may be of use in teaching the theory of tax incidence.

The Adequacy of Savings

This paper uses newly available data from the Social Security Administration's Retirement History Survey to examine the adequacy of saving. This data source is particularly rich; survey data for respondents covering the ydars 1969, 197 1( and 1953 have been matched with Social Security earnings records covering the years dating back to 1951. In addition to information on the path of lifetime earnhngs, the survey contains extensive data on individual asset holdings. The evidence indicates that surprisingly few couples currantly suffer significant reductions in their standard of living in their old age. This appears due, in large part, to our compulsory savings institutions, the Social Security and private pension systems. These institutions have succeeded in redistributing the lifetime consumption of private individuals from their youth to their old age.

The fiscal gap: an estimate for Russia

The fiscal gap is an indicator of the long-term balance of public finance and is calculated based on the intertemporal government budget constraint, which links government tax revenues and expenditures over long intervals. The estimate of the fiscal gap for the Russian general government has been determined according to three scenarios with varying assumptions regarding demographic trends, productivity growth rates, oil and gas prices and the quantity of extractable reserves. The calculations show that the current fiscal policy cannot provide for the stability of public finance in the long run. The main factors of budget imbalances are the growth of pension and health care expenditures caused by demographic trends and the gradual decline in tax receipts from the oil and gas sector.http://kotlikoff.net/articleshttp://kotlikoff.net/articlesFirst author draf