Inequality and Social Discounting

By Emmanuel Farhi, I. Werning. Journal of Political Economy, 2007

194 citations recorded by the source corpus.

We explore steady‐state inequality in an intergenerational model with altruistically linked individuals who experience privately observed taste shocks. When the welfare function depends only on the initial generation, efficiency requires immiseration: inequality grows without bound and everyone’s consumption converges to zero. We study other efficient allocations in which the welfare function values future generations directly, placing a positive but vanishing weight on their welfare. The social discount factor is then higher than the private one, and for any such difference we find that consumption exhibits mean reversion and that a steady‐state, cross‐sectional distribution for consumption and welfare exists, with no one trapped at misery.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/977a940569925cbba1a8705c31db5948057d88df

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Citations in the corpus

Progressive Estate Taxation (2010, background): “Please refer to the publisher's site for terms of use.”
Capital Taxation: Quantitative Explorations of the Inverse Euler Equation (2012, unknown): “This relaxed problem approach is adapted from Farhi and Werning (2007) and is related to the first welfare theorem proved in Atkeson and Lucas (1992).”
A Theory of Optimal Inheritance Taxation (2012, background): “This illuminating result was established by Farhi and Werning, 2007 and Farhi and Werning 2010 show that it also applies in their NDPF bequest tax model.54 Farhi and Werning (2010) then show that instead of being zero in expectation as in Kocherlakota (2005), the optimal expected bequest tax rate…”
Non-linear Capital Taxation Without Commitment (2012, background): “Related literature In this paper, we build on our previous research:Farhi and Werning(2007,2008) andSleet and Yeltekin (2006,2008a,b).”
A Theory of Liquidity and Regulation of Financial (2009, background): “…of dynamic taxation (see, e.g., Golosov, Kocherlakota, and Tsyvinski 2003, Golosov, Tsyvinski, and Werning 2006, Kocherlakota 2006, and Farhi and Werning 2007), private information (skill shocks) is dynamic and separable from consumption.7 In our setup, shocks a¤ect the marginal rate of…”
Efficient Allocations in Dynamic Private Information Economies with Persistent Shocks: A First-Order Approach (2013, background): “I define the ex-ante intertemporal See Werning [19], Golosov, Kocherlakota, Tsyvinski [9], Kocherlakota [16], Albanesi and Sleet [4], Albanesi [3] or Farhi and Werning [7], Kapicka [14] and others.”
The End of Economic Growth? Unintended Consequences of a Declining Population (2020, background): “For example, Farhi and Werning (2007) note that the social planner may care about future generations both because individuals care about their own children and because the social planner puts weight on each generation.”