The Transfer Paradox in the One-Sector Overlapping Generations Model

This paper examines the effects of international income transfers on capital accumulationand welfare in a one-sector overlapping generations model. It is shown that a strong form ofthe transfer paradox – in which the donor country experiences a welfare gain while therecipient country experiences a welfare loss – may occur both in and out of steady state. Inaddition, it is shown that a weak form of the transfer paradox – where either the donor orrecipient (but not both) experiences a paradoxical welfare effect – may characterize allsegments of the transition path not already characterized by the strong transfer paradox.