Aspirations and the transfer paradox in an overlapping generations model
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This study examines the transfer problem between two countries when either the donor or the recipient has aspirations, based on parents’ standards of living, in a one-sector overlapping generations model. Focusing on whether and how aspirations impact the welfare effect of a transfer, we demonstrate the following results. First, when the donor forms aspirations, as the degree of his/her aspirations to their parents increases, a transfer is more likely to cause donor enrichment. However, this does not affect the recipient’s welfare at all. In contrast, when the recipient forms aspirations, whether the increase in the degree of these aspirations causes immiserization depends on whether the transfer raises the recipient’s consumption. Second, we show that if the donor’s or recipient’s marginal utility increases with their respective aspirations, the transfer is more likely to cause recipient immiserization. However, whether donor enrichment occurs depends on the situation. These results imply that there are two types of effects that aspirations can have on the welfare of both countries: effects caused by the aspirations, and effects that occur through the capital market. Furthermore, we find that these two effects on welfare do not necessarily work in the same direction.
KeywordsAspirations Transfer paradox Overlapping generations model Capital accumulation
JEL ClassificationD91 E21 F35 F43
We would like to thank Ichiro Daitoh, Ken-ichi Hashimoto, Akihiko Kaneko, Hideya Kato, Junya Masuda, Noritsugu Nakanishi, Yasuhiro Takarada, and Akihiko Yanase, as well as the seminar participants of the 31st Nagoya International Economic Study Group (NIESG) International Economics Seminar in Kushiro Public University of Economics and the 3rd Spring Conference of the Japan Society of International Economics (JSIE) in Fukuoka University for their helpful comments and suggestions. In addition, we would like to thank the two anonymous reviewers for their constructive comments. This work is supported financially by JSPS KAKENHI, Grant Nos. 16K03615 and 16H03612 (Kojun Hamada), 24530262 (Tsuyoshi Shinozaki), 26380360 (Mitsuyoshi Yanagihara), 15K03449 (Kojun Hamada, Tsuyoshi Shinozaki, Mitsuyoshi Yanagihara), and the Nagai Foundation for Science and Technology (Mitsuyoshi Yanagihara). The usual disclaimer applies.
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