Fiscal Policy in an Overlapping Generations Model with Bequest-as-Consumption

This paper analyzes an overlapping generation (OLG) growth model wherein saving finances second period consumption and bequest-as-consumption. First, it looks at the market equilibrium and at the optimal solution; then it turns to the issue of decentralizing the optimal solution with various taxes and transfers. Depending on the available instruments, either a first-best or a second-best optimum can be achieved. Throughout the paper, the results are contrasted with those obtained in the standard OLG model without intergenerational transfers. Copyright 2004 Blackwell Publishing Inc..