Teixeira et al try to show that the model

Teixeira et al. (2002) try to show that the model of Kaldor–Pasinetti with government can be supported by Orthodox microfoundations. To do so, they analyze a model of overlapping generations with heterogeneous agents of Baranzini (1991), allowing the government to tax the inheritance at the beginning of each capitalist generation and make transfers to the workers. As in Steedman (1973), the authors assume that the government maintains the budget balanced in each instant of time, so that the revenue from the taxation of the capitalist’ inheritance is fully passed on to the worker. Two results of this study should be highlighted: This work follows the line of the Teixeira et al. (2002) since it pursues to conceive orthodox microfoundations to the macroeconomic model of Kaldor–Pasinetti with government. This work aims to extend the overlapping generations with heterogeneous agents and government model to allow both classes (capitalist and worker) to keep a positive intergenerational stock and discusses the conditions of existence of the two classes in equilibrium. Additionally, it checks the impact of taxation on the equilibrium interest rate and the distribution of wealth between the classes. To achieve the outlined objectives, this work is divided into three sections, besides this introduction. Section 2 presents the overlapping generations with government basic model (Teixeira et al., 2002). In Section 3, the hypotheses and the main results of these basic model extensions are discussed. The conclusions of the study are presented in Section 4.
A model of overlapping generations with heterogeneous agents and government In this section, the structure of a more info here model with government transfers outlined in the article of the Teixeira et al. (2002) is presented. The government is supposed to interfere in the economy only using a direct tax on the inheritance at the beginning of each capitalist generation, which is fully passed on to the workers. There is no kind of cost for the existence of this transfer. The main assumptions of the model are: The capitalist will maximize its utility function taking into account their preferred intertemporal consumption, as well as their willingness to leave legacy to their descendants. However, these preferences will be subject now to a new budget constraint. The capitalists have to solve the following maximization problem:where t is the taxation of inheritance at the beginning of every capitalist generation and σ is a coefficient of time preference for consumption. It is assumed that 0population growth.