Operative Gift and Bequest Motives

Abstract

In a pioneering paper, Barro (1 974) demonstrated that if consumers have operative altruistic bequest motives, then a reduction in lump-sum taxes accompanied by the issue of an equal amount of government bonds has no effect on the eflocation of resources.Berro stressed that this result, which has come to be known as the Picardian Equivalence Theorem, requires that the bequest motive be operative.In this context, the term "operative" means that equilibrium bequests are determined by tangencij conditions rather than by corner solutions such as meg arise from binding non-negativity constraints.If the bequest motive is not operative, then the Ricardian equivalence result presented by Barro does not hold and there are important effects associated with the governments choice between debt finance and taxes.More recently, Buiter (1 979) and Carmichael (1 982) have analyzed the altruistic gift motive in which consumers obtain utility from the utility of their parents and thus may be motivated to give resources to their parents.Their analyses confirm Barro's claim (p.11 04) that if the gift motive is operative, then the Picardian Equivalence Theorem holds.If the gift motive is not operative, then the Ricardian Equivalence Theorem fails to hold.Because the Ricardian Equivalence Theorem depends on an operative motive for private intergenerational transfers, it is important to determine the conditions under which either transfer motive will be operative.Several papers have studied whether the bequest motive is operative in a variety of different models1 but the literature does not contain an analysis of the conditions that determine whether the gift motive is operative.In this paper, I will study the conditions for an operative gift motive.However, rather than confine the analysis to a model in which consumers have only a gift motive, I will assume that individual consumers have two-sided transfer motives.That is, I will assume that individual consumers have both a gift motive and a bequest motive as in Burbidye (1 983), Buiter and Carmichael( 1 984) and

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