An intergenerational welfare analysis of international factor movements and government deficit

Date

1987

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Abstract

The opening essay briefly reviews our subject, "An Intergenerational Welfare Analysis of International Factor Movements and Government Deficit." Chapter II analyzes the welfare implications of international factor movements, utilizing the standard Overlapping Generation model without an intergenerational transfer motive. It is shown that if both economies are intertemporally efficient (inefficient) in autarky, then the steady-state welfare of a capitai-importing, or emigration country, improves (worsens), while the steady-state welfare of a capitai-exporting, or immigration country, worsens (improves). The following chapter, reexamines the welfare implications of international capital movements, using an OLG model with an intergenerational transfer motive. The analysis discloses that when a bequest (gift) motive is operative in the two countries in autarky, the steady-state welfare of the capitai-exporting (capitai-importing) country improves. Also, the greater the initial interest rate difference between the two countries, the more likely the steady-state welfare of the capital-importing (capitalexporting) country is to improve. Finally, Chapter IV exhibits the welfare implications of government deficit in an open economy. In the OLG model without an operative intergenerational transfer motive, the steady-state welfare of a country worsens as a result of an increase in the government deficit in either country, regardless of whether that country exports or imports capital, (1) if the economy of that country is intertemporally efficient in autarky without government intervention, and (2) if the open economy is intertemporally efficient. In the OLG model with a bequest (gift) motive, the steady-state welfare of the capital-importing (capitalexporting) country worsens (improves), but the steady-state welfare of the capital-exporting (capital-importing) country improves as a result of the increase of the capital-importing (capital-exporting) country's government deficit. However, the government deficit of the capital-exporting (importing) country is neutral.

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Keywords

Welfare economics, Mathematical models, Capital movements, Public debts

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