Fiscal Policy in a Growth Model with Both Altruistic and Nonaltruistic Agents

Abstract

This paper examines the long‐run behavior of an overlapping generations model with a population consisting of altruistic and nonaltruistic agents. It also studies the effect of fiscal policy on aggregate capital accumulation and on the welfare of both types of agents. It shows that an increase in the relative number of nonaltruists is Pareto‐improving in the steady state. It also shows that the introduction of public debt or unfunded social security has no effect on the long‐run equilibrium but implies a transfer of resources from the nonaltruistic to the altruistic agents. Finally, it indicates that inheritance taxation hurts not only the altruists but also the nonaltruists.

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