Endogenous Bequest Motive and Capital Accumulation: The Implications of Tax Policy

This paper develops a one sector aggregate endogeneous overlapping generational growth model with endogenous bequest motive. A notable tax policy implication of the model concerns the growth effects of income taxs. We demonstrated that when bequest motive is operative interest income taxation decreases capital accumulation and growth rate while the wage income taxation increases capital accumulation and growth rate. This paper also deals with international economy and shows that higher interest income taxation in one ì ´y lowers growth rate of the country while it increases that of the other countries. But wage income taxation has no effect in growth rate difference across countries but results in higher growth rates in both countries in the long run. Thus our analysis explains both the convergence of economic growth rates and persistence of different economic growth rates across countries，and empirical analyses.