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This section of the paper considers a particular model of bequests proposed by Barro (1974). The dynast alive at time t is assumed to solve the intertemporal maximization problem:
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where Ct corresponds to the lifetime consumption spending of the generation living at time £, W is the dynasty’s wealth, Y is the (noncapital) income earned by that generation, R is the intergenerational interest rate, and j3 is the discount factor. The implications of this equation for macroeconomics spawned the large literature on Ricardian equivalence in the 1970s and 1980s. More recently, Altonji, Hayashi and Kotlikoff (1992) have tested the Dynastic model with household-level data from the Panel Study of Income Dynamics and rejected its strong implication that only dynastic resources should matter for any individual family’s consumption. The typical PSID family, however, is not particularly wealthy, so those results do not necessarily imply that the Dynastic model is a poor one for the wealthiest families.

Although intuition suggests that the dynastic model might be interchangable with other models in which leaving a bequest yields utility, in fact the model has distinctive implications, such as Ricardian equivalence, that need not follow from other models of bequests. As a result, the economic literature has drawn a distinction between Dynastic models like the one specified in equation 3 and “Joy of Giving” models in which the bequest yields utility directly. For example, the Dynastic model implies that the size of the bequest should be a function of the ratio of the parent’s lifetime income and the child’s lifetime income; that parents should give larger bequests to poorer children; and that childless wealthy people should leave no bequests. All of these implications of the Dynastic model have been tested in population-representative datasets and none has received consistent empirical support. This section provides evidence that the Dynastic model is also a poor description of the behavior of the richest households.