Affiliation:
1. School of Public Finance and Taxation Central University of Finance and Economics Beijing China
2. School of Economics and Business Administration Chongqing University Chongqing China
3. Department of Economics National University of Singapore Singapore Singapore
Abstract
AbstractThis paper investigates the accumulation and distribution of retirement wealth in a dynastic model with earnings risks, longevity uncertainties, and borrowing constraints. It resolves the wealth indeterminacy problem across generations in dynastic families by introducing a transaction cost for intergenerational transfers. It captures the pattern of inter vivos transfers, the relationship between wealth and earnings, and wealth inequality in the US data. Social security lowers precautionary savings by redistributing income from families with high earnings or short‐lived parents to others, thus reducing investment, the growth rate in income per capita, inequality in retirees' consumption, and the wealth‐earnings correlation.