Fiscal policy and economic growth in the presence of intergenerational transfers

This thesis is entitled ’Fiscal policy and economic growth in the presence of intergenerational transfers’. It is composed of four self-contained chapters and focusses on the growth and welfare effects of taxation and public spending. The common denominator of all four chapters is that they incorporate an endogenous growth process in an overlapping generations model to evaluate long-term policy implications when different generations are affected in different ways by fiscal policy. In the first and second chapter the implications of capital income taxation for the growth process are discussed. The analysis emphasizes the role of public and private intergenerational transfers in form of public pensions and bequests as well as intergenerational redistribution induced by public policies. Among other results, it turns out that the presence or absence of such transfers critically determines whether an increase of capital income taxes with additional revenue being devoted to cut wage taxes may enhance economic growth. In the third chapter, the focus of the analysis is on social security funding and its implications for economic growth. Whereas a pay-as-you-go pension scheme, as considered in chapter one, naturally includes intergenerational transfers from the current working generation to retirees, a fully funded social security system does not. Still, the presence of such transfers within the economy in form of private educational spending and bequests turns out to play a key role in deter- mining the impact of funded social security on economic growth. More specif- ically, it is shown that a funded pension scheme may harm growth if there are operative bequests within the family, and parents thus face a trade-off between educating their children and leaving bequests. By contrast, when bequests are inoperative, the Ricardian equivalence holds and an increase in forced savings is exactly offset by a reduction in private savings leaving capital accumulation and educational spending unchanged. Chapter four discusses the ...