When
a family saves for future generations, it provides resources to finance
capital investments, like the start-up of new businesses and the
expansion of old ones. Greater capital, in turn, affects the earnings of
both existing capital and workers.
Because
capital is subject to diminishing returns, an increase in its supply
causes each unit of capital to earn less. And because increased capital
raises labor productivity, workers enjoy higher wages. In other words,
by saving rather than spending, those who leave an estate to their heirs
induce an unintended redistribution of income from other owners of
capital toward workers.
The
bottom line is that inherited wealth is not an economic threat. Those
who have earned extraordinary incomes naturally want to share their good
fortune with their descendants. Those of us not lucky enough to be born
into one of these families benefit as well, as their accumulation of
capital raises our productivity, wages and living standards.
Why do (does Prof.Mankiw think) parents leave bequests to their children?
(1) Inter-generational Altruism
(2)Consumption Smoothing
(3)Regression toward the Mean
There's no strategic bequest motive.
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