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The Role of Intergenerational Transfers in Aggregate Capital Accumulation

Laurence J. Kotlikoff and Lawrence H. Summers
Journal of Political Economy
Vol. 89, No. 4 (Aug., 1981), pp. 706-732
Stable URL: http://www.jstor.org/stable/1833031
Page Count: 27
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The Role of Intergenerational Transfers in Aggregate Capital Accumulation
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Abstract

This paper uses historical 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 to 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 life-cycle savings. This paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers. Life-cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers.

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