Altruism Economic Growth and Income Distribution

We consider an Overlapping-generations economy where the aggregative production process uses physical capital and human capital The human capital level of each individual is determined by the direct investment in education and some random ability The parents' investment in the education of their offspring is motivated by altruism We distinguish between two types of transfers: The investment of parents in the education of their offspring which affects his/her future income and the direct capital transfer (the 'bequest motive') We show that the intensity of each type of altruism plays an important role on the equilibrium growth and the income distributions but the results differ significantly Comparing competitive equilibria from the same initial capital and human capital distributions we derive the following results: (a) When altruism is more 'education-inclined' then economic growth is higher and the intragenerational income distributions are more equal (less equal) in all periods if the production function's elasticity of substitution is larger (smaller) than 1 (b) When altruism is more 'bequest-inclined' the growth rate is lower and the impact on the intragenerational distributions of income depends on the size of the elasticity of substitution