Fiscal Policy with Agents Differing in Altruism and Ability

This paper explores the effects of a menu of intergenerational fiscal policies (public debt financed by taxes, PAYG social security system, inheritance taxation) in an overlapping-generations model with perfect altruism. It generalizes Barro's model by introducing intragenerational heterogeneity; in other words, households differ in productivity and altruism. Within such a model, wealth is held entirely in the steady state by those families with the highest degree of altruism. Under plausible assumptions, both public debt and social security are neutral a la Ricardo, while inequality increases. Also, estate taxation can be Pareto-worsening even though it fosters income equality