Indeterminacy, intergenerational redistribution, endogenous longevity and human capital accumulation

This paper sets up an OLG economy with endogenous life expectancy to study how fiscal policy that redistributes between generations can open the door to sunspot equilibria. Agents invest independently in their own human capital, produce and consume output, and receive a pension upon retirement. The...

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Bibliographic Details
Published in:Journal of economic dynamics & control 2007-02, Vol.31 (2), p.613-633
Main Authors: Cipriani, Giam Pietro, Makris, Miltiadis
Format: Article
Language:English
Subjects:
Capital accumulation
Economic models
Endogenous longevity
Fiscal policy
Human capital
Income redistribution
Intergenerational redistribution
Life expectancy
Local indeterminacy
Studies
Sunspots
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Summary:This paper sets up an OLG economy with endogenous life expectancy to study how fiscal policy that redistributes between generations can open the door to sunspot equilibria. Agents invest independently in their own human capital, produce and consume output, and receive a pension upon retirement. The model produces an expectations coordination problem that can explain significant differences in growth paths followed by otherwise identical countries. In particular, we show that our economy may be characterized by local indeterminacy of dynamic equilibria, and hence feature fluctuations which are driven by extrinsic uncertainty.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2005.12.005