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On the long-run fluctuations of inheritance in two-sector OLG models

Abstract : This paper provides a long-run cycle perspective to explain the behavior of the annual flow of inheritance as identified by Piketty [51] for France and Atkinson [3] for the UK. Using a two-sector Barro-type [9] OLG model with non-separable preferences and bequests, we show that endogenous fluctuations are likely to occur through period-2 cycles or Hopf bifurcations. Two key mechanisms, which can generate independently or together quasi-periodic cycles, can be identified as long as agents are sufficiently impatient. The first mechanism relies on the elasticity of intertemporal substitution or equivalently the sign of the cross-derivative of the utility function whereas the second rests on sectoral technologies through the sign of the capital intensity difference across two sectors. Furthermore, building on the quasi-palindromic nature of the degree-4 characteristic equation, we derive some meaningful sufficient conditions associated to the occurrence of complex roots in a two-sector OLG model. Finally, we show that our theoretical results are consistent with some empirical evidence for medium- and long-run swings in the inheritance flows as a fraction of national income in France over the period 1896-2008.
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https://halshs.archives-ouvertes.fr/halshs-03080407
Contributor : Elisabeth Lhuillier <>
Submitted on : Thursday, December 17, 2020 - 4:35:33 PM
Last modification on : Tuesday, December 29, 2020 - 3:31:32 AM

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Florian Pelgrin, Alain Venditti. On the long-run fluctuations of inheritance in two-sector OLG models. 2020. ⟨halshs-03080407⟩

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