Beggar-Thy-Parents? A Lifecycle Model of Intergenerational Altruism

Abstract

This paper constructs a quantitative general equilibrium model with both lifecycle and dynastic features along with uninsurable labor income to assess differences in wealth and intergenerational transfers across countries. The model features both 'pure' and 'impure' forms of altruism and investigates the role of borrowing constraints in accounting for the timing of intergenerational transfers between intervivos transfers and bequests. Under a perfect capital market, the timing of parental transfers is irrelevant. However, under borrowing constraints, parental transfer will be geared towards helping out borrowing-constrained children. The model is calibrated to match the US and Korean economy. Numerical experiments show that tightening borrowing constraints leads to more intervivos transfers geared towards younger children and lower level of bequest. Borrowing constraints also play a role in accounting for the observed differences in the wealth inequality between the two economies.